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Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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SLG Corp. is an all-equity firm with a weighted average cost of capital of 10.02 percent. The current market value of the equity is $13.4 million and the total tax rate is 22 percent. What is EBIT?
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- K Pfd Company has debt with a yield to maturity of 7.01%, a cost of equity of 14.51%, and a cost of preferred stock of 9.92%. The market values of its debt, preferred stock, and equity are $10.3 million, $2.7 million, and $14.6 million, respectively, and its tax rate is 30%. What is this firm's after-tax WACC? Note: Assume that the firm will always be able to utilize its full interest tax shield. Pfd's after-tax WACC is %. (Round to two decimal places.)arrow_forwardA levered firm has a pretax cost of debt of 6.8 percent and an unlevered cost of capital of 14 percent. The tax rate is 21 percent and the cost of equity is 17.7 percent. What is the debt-to-equity ratio? O 0.65 0.47 0.41 O 0.52arrow_forwardThe Tailgate Store has a cost of equity of 8.6 percent. The company has an after-tax cost of debt of 4.5 percent, and the tax rate is 39 percent. If the company's debt-equity ratio is .65, what is the weighted average cost of capital? 8.85% 9.10% 6.55% 7.15% 6.98%arrow_forward
- A firm is financed 75% by common stock, 9% by preferred stock and 18% by debt. The required return is 11% on the common, 9% on the preferred, and 4% on the debt. If the tax rate is 21% what is the WACC?arrow_forwardSuppose Goodyear Tire and Rubber Company has an equity cost of capital of 7.9%, a debt cost of capital of 6.4%, a marginal corporate tax rate of 21%, and a debt-equity ratio of 2.7. Assume that Goodyear maintains a constant debt-equity ratio. a. What is Goodyear's WACC? b. What is Goodyear's unlevered cost of capital? c. Explain, intuitively, why Goodyear's unlevered cost of capital is less than its equity cost of capital and higher than its WACC. a. What is Goodyear's WACC? The WACC is %. (Round to two decimal places.)arrow_forwardJones Soda estimates that its required return on equity is 11.0 percent and the yield to maturity on its debt is 6.0 percent. The company's equity-to-asset ratio is 0.2 and the marginal tax rate is 30%. What is the company's weighted average cost of capital? Enter your answer as a percent and round to two decimals, but don't include the % sign. Numeric Responsearrow_forward
- Given the following information, compute the firm's WACC: • The firm's cost of equity = 16% • The firm's before-tax cost of long-term debt = 7% • The firm's capital structure is 35% long-term debt and 65% common equity • The firm's marginal tax rate = 25% O 10.25% O 12.85% 12.24% O 13.28%arrow_forwardA company finances its operations and growth opportunities, using common equity and debt. The debt-to-equity ratio of the CI Corp. is 0.3. If its cost of equity is 14%, and its pretax cost of debt is 5%, what comes closest to the company’s WACC? The tax rate is 21%. 6.7% 4.5% 7.1% 6.3% 5.8% The answer is not 7.1%arrow_forwardSuppose Goodyear Tire and Rubber Company has an equity cost of capital of 8.1%, a debt cost of capital of 6.6%, a marginal corporate tax rate of 22%, and a debt-equity ratio of 2.5. Assume that Goodyear maintains a constant debt-equity ratio. a. What is Goodyear's WACC? b. What is Goodyear's unlevered cost of capital? c. Explain, intuitively, why Goodyear's unlevered cost of capital is less than its equity cost of capital and higher than its WACC. Question content area bottom a. What is Goodyear's WACC? The WACC is enter your response here%. (Round to two decimal places.)arrow_forward
- Homemade Flying Machines has a capital structure of 33% debt, 10% preferred stock and 57% common stock. The pre-tax cost of debt is 4.8%, the cost of preferred stock is 8% and the cost of equity is 13%. The firm's marginal tax rate is 21%. What is the company's weighted average cost of capital?arrow_forwardCoffeeCarts has a cost of equity of 14.2%, has an effective cost of debt of 3.7%, and is financed 65% with equity and 35% with debt. What is this firm's WACC? CoffeeCarts's WACC is%. (Round to one decimal place.)arrow_forward
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