Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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The Outlet has an unlevered cost of capital of 14.2 percent, a tax rate of 35 percent, and expected earnings before interest and taxes of $23,400. The company has $23,000 in bonds outstanding that have a coupon rate of 7 percent. The bonds are selling at par. What is the
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- A company finances its operations with 57 percent debt and the rest using equity. The annual yield on the company's debt is 6% and the required rate of return on the stock is 14.6%. What is company's WACC? Assume the tax rate is 30%arrow_forwardCompute the WACC of a firm that currently has $1 million in debt and $2 million in equity and $1 million in preferred stock. The current yield to maturity on the firms debt is 2%. Equity holders require a 6% return and preferred stock holders require a 3.8% return. The current tax rate that applies to the firm is 30%. Write your answer as a decimal.arrow_forwardJohnson Tire Distributors has debt with both a face and a market value of $90,000,000. This debt has a coupon rate of 7 percent and pays interest annually. The expected earnings before interest and taxes is a constant $50,000,000 in perpetuity. The company's tax rate is 25 percent, and the unlevered cost of capital is 25 percent. What is the firm's cost of equity? Write your answer as a percent rounded to two digits, but don't include the % sign (i.e. enter 12.63, not 0.1263). HINT: You need to use both M&M propositions. Numeric Responsearrow_forward
- Your firm has $2,100,000 in stock assets with a duration of 12 and $900,000 in cash with a duration of 0. Your firm has issued debt with a present value of $1,700,000 and a duration of 16. The yield curve is flat at 4.35%. a) What is the value of equity? b) What is the duration of equity?arrow_forwardA company just paid $1.23 in dividends per share, and it has a dividend payout of 38%. Considering that the PE ratio is 8 times, determine the price of this company’s individual stocks. d. If the coupon rate of a bond is 3.05% and the yield to maturity is 6.48%, and if a bondholder has a marginal tax rate of 21%, determine their after tax yield in this case.arrow_forwarda firm has a debt-to-equity ratio of 1.0. if we assume that the firm's debt pays 11% interest annualy, the equity has a 19% annual return, and the tax rate is 40%, then what is the firms WACC?arrow_forward
- ABC Inc. borrows money at 9%, sells bonds at 8%, and the purchasers of common stock require 13% rate of return. If the company has borrowed $40 million, sold $60 million in bonds, and sold $100 million worth of common stocks, what is the Weighted Average Cost of Capital (WACC)? If the same company from the previous question used 5% ROR for loans, 9% ROR for bonds, and 12% ROR for stocks, and also used a 50% tax rate, what is the WACC?arrow_forwardABC International has an unlevered cost of capital of 10 %, a tax rate of 35 %, and expected earnings before interest and taxes of $26,500. The company has $40,000 in bonds outstanding that have a 7% coupon and pay interest annually. The bonds are selling at par value. What is the cost of equity?arrow_forwardJenkins, Inc., has equity with a market value of $23.1 million and debt with a market value of $9.24 million. The cost of debt is 10 percent per year. Treasury bills that mature in one year yield 6 percent per year, and the expected return on the market portfolio over the next year is 11 percent. The beta of the company’s equity is 1.16. The firm pays no taxes. What is the cost of capital for an otherwise identical all-equity firm?arrow_forward
- The company you work for wants you to estimate the company’s WACC; but before you do so, you need to estimate the cost of debt and equity. You have obtained the following info. 1) the firms non-callable bonds mature in 20 years, have an 8.00% annual coupon, a par value of $1,000 and a market price of $1,225.00. 2) the company’s tax rate is 40%. 3)the risk-free rate is 4.50%, the market risk premium is 5.50%, and the stocks beta is 1.20. 4) the target capital structure consists of 35% debt and the balance is common equity. The firm uses the CAPM to estimate the cost of equity, and it does not expect to issue any common stock. WHAT is the WACC?arrow_forwardThe X corporation has unlivered cost of equity of 10%.the company wants to expands its operations by issuing new debt.if the cost of the debt of the company is 6% and the cororate tax is 30%.what is the debt equity ratio of the company if the target cost of equity is 12%.arrow_forwardMint Industries has a target debt-equity ratio of 0.60, a cost of equity of 10%, and one issue of bonds that are offering a yield to maturity of 7.67%. If Minder’s tax rate is 40%, what is the company’s WACC?arrow_forward
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