Problem 11-27 (Algo) Marginal cost of capital [LO11-5] Delta Corporation has the following capital structure: Debt (Kd) Preferred stock (Kp) Common equity (Ke) (retained earnings) Weighted average cost of capital (Ka) Cost (aftertax) 9.6% Weighted Weights Cost 30% 2.88% 7.8 5 0.39 9.2 65 5.98 9.25% a. If the firm has $52 million in retained earnings, at what size capital structure will the firm run out of retained earnings? Note: Enter your answer in millions of dollars (e.g., $10 million should be entered as "10". Capital structure size (X) million b. Note: Enter your answer in millions of dollars (e.g., $10 million should be entered as "10".The 9.6 percent cost of debt referred to earlier applies only to the first $24 million of debt. After that the cost of debt will go up. At what size capital structure will there be a change in the cost of debt? Capital structure size (Z) million

Problem 11-27 (Algo) Marginal cost of capital [LO11-5] Delta Corporation has the following capital structure: Debt (Kd) Preferred stock (Kp) Common equity (Ke) (retained earnings) Weighted average cost of capital (Ka) Cost (aftertax) 9.6% Weighted Weights Cost 30% 2.88% 7.8 5 0.39 9.2 65 5.98 9.25% a. If the firm has $52 million in retained earnings, at what size capital structure will the firm run out of retained earnings? Note: Enter your answer in millions of dollars (e.g., $10 million should be entered as "10". Capital structure size (X) million b. Note: Enter your answer in millions of dollars (e.g., $10 million should be entered as "10".The 9.6 percent cost of debt referred to earlier applies only to the first $24 million of debt. After that the cost of debt will go up. At what size capital structure will there be a change in the cost of debt? Capital structure size (Z) million

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter12: Capital Structure

Section: Chapter Questions

Problem 9PROB

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Evans Technology has the following capital structure. Debt Common equity 35% 65 The aftertax cost of debt is 7.50 percent, and the cost of common equity (in the form of retained earnings) is 14.50 percent. a. What is the firm's weighted average cost of capital? Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places. Debt Common equity Weighted average cost of capital Weighted Cost % % An outside consultant has suggested that because debt is cheaper than equity, the firm should switch to a capital structure that is 50 percent debt and 50 percent equity. Under this new and more debt-oriented arrangement, the aftertax cost of debt is 8.50 percent, and the cost of common equity (in the form of retained earnings) is 16.50 percent. Debt Common equity Weighted average cost of capital b. Recalculate the firm's weighted average cost of capital. Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal…
2. Compute the overall cost of capital based the following data. Which weight is preferable? Why? Descriptions Equity Debt Preference Shares TOTAL Specifi c cost of capital 20% 10% 14% Marginal Weights Amount Proportion S 200 700 200 1100 S 0.18 0.64 0.18 1.00 Book Value Weights Amounts Proportions 300 400 100 800 0.38 0.50 0.13 1.00 Market Value Weights Amount Proportions S 600 800 200 1600 0.4 0.5 0.1 1.00
Evans Technology has the following capital structure. Debt Common equity The aftertax cost of debt is 8.50 percent, and the cost of common equity (in the form of retained earnings) is 15.50 percent. a. What is the firm's weighted average cost of capital? Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places. 48% 60 Debt Common equity Weighted average cost of capital Weighted Cost % % An outside consultant has suggested that because debt is cheaper than equity, the firm should switch to a capital structure that is 50 percent debt and 50 percent equity. Under this new and more debt-oriented arrangement, the aftertax cost of debt is 9.50 percent, and the cost of common equity (in the form of retained earnings) is 17.50 percent. b. Recalculate the firm's weighted average cost of canital
Evans Technology has the following capital structure. Debt Common equity 30% 70 The aftertax cost of debt is 7.50 percent, and the cost of common equity (in the form of retained earnings) is 14.50 percent. a. What is the firm's weighted average cost of capital? Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places. Debt Common equity Weighted average cost of capital Weighted Cost % 0.00 % Q Search An outside consultant has suggested that because debt is cheaper than equity, the firm should switch to a capital structure that is 50 percent debt and 50 percent equity. Under this new and more debt-oriented arrangement, the aftertax cost of debt is 8.50 percent, and the cost of common equity (in the form of retained earnings) is 16.50 percent. b. Recalculate the firm's weighted average cost of capital. O Che
Assume that your company is trying to determine its optimal capital structure, which consists only of debt and common stock. To estimate the cost of debt, the company has produced the following table: 09.86% 9.56% Percent Financed With Debt 10.16% 8.96% 9.26% 0.10 0.20 0.30 0.40 0.50 Percent Financed With Equity 0.90 0.80 0.70 0.60 0.50 Debt/Equity Ratio Now assume that the company's tax rate is 40 percent, that the company uses the CAPM to estimate its cost of common equity, Ks, that the risk-free rate is 5 percent and the market risk premium is 6 percent. Finally assume that if it has no debt its WACC would be equal to its cost of equity which would be equal to 11 percent (you should now be able to determine its "unlevered beta," bu). 0.10/0.90 0.11 0.20/0.80 0.25 Given this information, determine the firm's cost of capital if it finances with 40 percent debt and 60 percent equity. 0.30/0.70=0.43 0.40/0.600.67 0.50/0.50 = 1.00 Bond Rating AA A A BB B Before-Tax Cost of Debt 7.0% 7.2%…
The basic WACC equation The calculation of a weighted average cost of capital (WACC) involves calculating the weighted average of the required rates of return on debt and equity, where the weights equal the percentage of each type of financing in the firm’s overall capital structure. what is the symbol that represents the cost of preferred stock in the weighted average cost of capital (WACC) equation.__________ Bob Co. has $1.26 million of debt, $3.16 million of preferred stock, and $2.02 million of common equity. The appropriate weight of the firm's preferred stock in the calculation of the company's weighted average cost of capital is____________% .
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A company has on its books the following amounts and the specific costs of each type of capital. Market value Types of capital Debts Preference shares Book Value Specific cost % 400000 380000 110000 900000 5. 100000 8. Equity shares 600000 15 Determine the weighted average cost of capital using: (a) Book value weights, and (b) Market value weights
Assume the following information about a firm's capital components: What is the firm's WACC? capital structure cost debt $20000 8% preferred stock $20000 11% common stock $60000 14% 12.2 % 12.05% 11.9% 11%
Delta Corporation has the following capital structure: Cost (aftertax)WeightsWeighted CostDebt (Kd)5.5%25%1.38%Preferred stock (Kp)10.5252.63Common equity (Ke) (retained earnings)10.5505.25Weighted average cost of capital (Ka) 9.25% If the firm has $26 million in retained earnings, at what size capital structure will the firm run out of retained earnings? Note: Enter your answer in millions of dollars (e.g., $10 million should be entered as "10". Note: Enter your answer in millions of dollars (e.g., $10 million should be entered as "10".The 5.5 percent cost of debt referred to earlier applies only to the first $18 million of debt. After that the cost of debt will go up. At what size capital structure will there be a change in the cost of debt?
The company capital structure consists of debt 250000 at 0.084, preferred stock 230000 at 11% and common stock 120,000 at 14%, calculate a company's weighted average cost of capital Select one: O a. 0.1051 O b. 0.0629 OC 0.0771 d. 0.0349 e. All the given choices are not correct
Check my work Evans Technology has the following capital structure. Debt Common equity 25% 75 The aftertax cost of debt is 7.00 percent, and the cost of common equity (in the form of retained earnings) is 14.00 percent. a. What is the firm's weighted average cost of capital? (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Weighted Cost Debt Common equity Weighted average cost of capital 0.00 % An outside consultant has suggested that because debt is cheaper than equity, the firm should switch to a capital structure that is 50 percent debt and 50 percent equity. EGO 152 APA ttv MacBook Air