Suppose Microsoft has no debt and a WACC of 8.7%. The average debt-to-value ratio for the software industry is 8.6%. What would be its cost of equity if it took on the average amount of debt for its industry at a cost of debt of 6.4%? The cost of equity is ☐ %. (Round to two decimal places.)

Suppose Microsoft has no debt and a WACC of 8.7%. The average debt-to-value ratio for the software industry is 8.6%. What would be its cost of equity if it took on the average amount of debt for its industry at a cost of debt of 6.4%? The cost of equity is ☐ %. (Round to two decimal places.)

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Related questions

Q: A project that will provde annual cash flows of $3,050 for nine years costs $10,200 today. a. At a…

A: Net Present Value is a financial measure used to evaluate the profitability of an investment by…

Q: A debt of $819.07 was to be repaid in 33 months. If $1007.02 was repaid, what was the nominal rat…

A: Nominal rate refers to the interest rate that is being charged by the lender over the debt amount…

Q: please provide correct answers. I will upvote.

A: a. DDM = Dividend paid*(1+growth rate)/Current price + growth rate6.65%b. CAPM = Risk free rate +…

Q: Wolfson Corporation has decided to purchase a new machine that costs $4 million. The machine will be…

A: NAL is the net present value of entering into a lease instead of buying an asset using borrowed…

Q: Please help with a discussion on question #2. The base country is Nevis and the countries trading to…

A: For your discussion on question #2 regarding the main foreign currencies that will be used in the…

Q: Financial Marketing Analysis Security Volume Value High Low Traded Traded Price Change Close Closing…

A: Note: As per the Q&A guidelines, if multiple questions are asked at once then the answer for…

Q: Consider a bond that has a life of 2 years and pays a coupon of 10% per annum (with semiannual…

A: Bond Valuation(a) Bond PriceConvert annual rates to semiannual rates:Coupon rate (semi-annual) = 10%…

Q: Fitzgerald Corporation currently has an all-cash credit policy. It is considering making a change in…

A: Net present value is the metric that takes into account the time value of money in evaluating the…

Q: A portfolio consists of two securities: a 90-day T-bill and the S&P/TSX Composite. The expected…

A: Portfolio's expected return is the weighted average of it's individual components' returns.The…

Q: Sky High Co. just paid a dividend of $4.9 per share on its stock (Do). The dividends are expected to…

A: Last paid dividend (D0) = $4.9Constant growth rate (g) = 5% or 0.05Required rate of return (r) =…

Q: Sunshine Corp hired a new CFO and changed firm's policy from zero leverage to some leverage. They…

A: WACC can be referred as the average capital cost based on weights assigned to specific source of…

Q: [Ch 2] Use the following firm's balance sheet to answer the next three problems. All values in the…

A: The equity multiplier, also known as the leverage ratio, is a financial metric measuring the…

Q: The coupon rate of a bond is typically __________.a. fixed at the time of bond issuanceb.subject to…

A: In this question, we are required to determine the correct statement regarding coupon rate of a…

Q: I need solution fast

A: The objective of the question is to forecast the net income for the year 2017 based on the given…

Q: Neveready Flashlights Inc. needs $340,000 to take a cash discount of 3/17, net 72. A banker will…

A: The first question is asking for the effective rate on the bank loan. The effective rate can be…

Q: The following table summarizes the yields to maturity on several one-year, zero-coupon securities:…

A: Yield of treasury = 3.11%Yield of AAA corporate = 3.18%Yield of BBB corporate = 4.20%Yield of B…

Q: Ibrahim has a mortgage of $429,000 through his bank for property purchased. The loan is repaid by…

A: Any sum borrowed to meet any specific personal or business needs is regarded as a mortgage/loan. The…

Q: Chinese RMB is currently priced at $17 per 100 yuan. Assume a continuously compounding interest rate…

A: Forward Price = $15.70 per 100 YuanExplanation:100 Yuan = $1Continuous compounding rate on Dollar =…

Q: Currency straddle - Short position - Seller of options Construct a short straddle Put and call…

A: The objective of the question is to construct a short straddle for currency straddle where we are…

Q: K Your company currently has 5% coupon-rate bonds (coupons are paid semi-annually) with ten years to…

A: The objective of the question is to find out the coupon rate that needs to be set for the new bonds…

Q: Why isn't the share price of a long-lasting company like Johnson & Johnson extremely high to reflect…

A: The question focuses on how future cash flows affect a company's share price, which touches on basic…

Q: c.) Bank A has three types of assets: Debenture ($90,000), Mortgage ($75,000), and Loan to the…

A: The objective of the question is to calculate the Capital Adequacy Ratio (CAR) for Bank A and…

Q: Shelly Obama Sanders gets a loan for $3,000 and repays the loan in 12 monthly payments of $258.75…

A: Interest payments on a loan represent the cost of borrowing money from a lender. When an individual…

Q: Write on Exploring the Efficiency of Financial Markets in the Caribbean: An Analysis of…

A: Exploring the Efficiency of Financial Markets in the Caribbean: An Analysis of Evidence Supporting…

Q: Assume the return on a market index represents the common factor and all stocks in the economy have…

A: Expected return is expressed in percentage where the weights and returns for each stock after…

Q: The cost of a college education is currently $15,000 per year. The expected annual inflation rate…

A: To cover a $15,000 college education in 5 years with 3% annual inflation, you need to deposit…

Q: If $840.00 accumulates to $1177.12 in three years, nine months compounded quarterly, what is the…

A: The objective of the question is to find the effective annual rate of interest when the principal…

Q: (Security market line) You are considering the construction of a portfolio comprised of equal…

A: Beta for each asset:For asset A = 2.30For asset B = 0.80For asset C = 0.60For asset D = -1.60Each…

Q: Amalgamated Industries currently pays no dividends. It will begin paying dividends in 5 years. Its…

A: “Since you have asked multiple questions, we will answer the first question for you. If you want any…

Q: In the context of of cubic interpolation as discussed in the lecture, in order to find the cubic…

A: Please refer to the explanation, THANKYOU !!Explanation:The correct option is select four rates. As…

Q: Please help with question #2. The based country is Trinidad and the countries trading to is…

A: Main Foreign Currencies and Foreign Exchange Risk MitigationMain Foreign Currencies:Australian…

Q: Lars acquired a new network system on June 5, 2023 (five-year class property), for $69,000. She…

A: To determine Lars's maximum cost recovery deduction for the purchases made in 2023, we will…

Q: ReNew Corporation raises funds to build renewable energy systems by issuing 3-year bonds with a…

A: This question revolves around the concept of bond pricing, specifically how changes in market…

Q: 1 Year Plan ☐ Projected Income ☐ Savings Goal ☐ Monthly Budget Bank Accounts and Lines of Credit…

A: Financial planning is very important in life because money is limited but wishes are many so one can…

Q: Summa Laude (Pty) Ltd ("Summa Laude") is an entity that owns various properties that the entity…

A: Cost of property = R1,637,000Cash available = R250,000Interest rate = 10.9%Number of years = 3To…

Q: You bought a house with price of $250,000. Your LTV (loan-to-value ratio) is 80%. You choose the…

A: Certainly! Let's break down each part of your question:a. Loan Amount:The loan amount is calculated…

Q: Suppose you are going to receive $13,500 per year for five years. The appropriate interest rate is…

A: In an ordinary annuity, the cash flow occurs at the end of each period.Present value of ordinary…

Q: Sunshine Corp hired a new CFO and changed firm's policy from zero leverage to some leverage. They…

A: The weighted average cost of capital of company is representative of the cost of capital for average…

Q: Use the following to solve questions a. and b. with excel A house with price of $250,000 20% down…

A: To solve these questions, we would typically use Excel's financial functions to calculate the total…

Q: The following table shows the prices of a sample of Treasury bonds, all of which have coupon rates…

A: The objective of the question is to calculate the interest rates for different maturity periods and…

Q: Problem 6-45 (LO. 3) Alex, who is single, conducts an activity in the current year that is…

A: To determine the amount of income Alex must report and the deductible expenses related to his hobby…

Q: With the following information, compute the net benefit of refinancing: Current loan balance:…

A: Refinancing is a financial strategy aimed at securing lower interest rates, reducing monthly…

Q: What is the difference between an investment - grade bond and a junk bond? 2 . What are the…

A: The primary difference between an investment grade bond and a junk bond lies in the credit quality…

Q: You are purchasing a home for $ 395,000. The loan requires a down payment of 15% of the purchase…

A: A mortgage refers to a covered loan borrowed for the purchase or maintenance of a property with the…

Q: 6. Pre-Financing Post-Financing Security # of Shares % # of Shares % Common-Founders 7,750,000 77.5…

A: The objective of the question is to understand the distribution of shares and the exit value for the…

Q: Please only anser in Excel format, including lay out, formulas and screenshots. mary finds a job…

A: The time value of money is a concept in finance that takes into account the effect of compounding to…

Q: Total assets R1 162 000 Total equity R1 200 000 Net profit margin Sales 19.65% R1 890 000 Current…

A: The objective of the question is to calculate the Return on Assets (ROA) of KwaZulu Limited using…

Q: This needs to be done with the PMT functions, I can't figure out why the principal and interest…

A: See the answer in the explanation field.Explanation:Answer information:Step 1:There are 4 steps to…

Q: Suppose you have just become the president of J&J and the first decision you face is whether Co go…

A: The objective of the question is to calculate the Net Present Value (NPV) of the project to renovate…

Q: Iron Corporation is evaluating an extra dividend versus a share repurchase. In either case, $18,000…

A: Given:Iron Corporation is evaluating between an extra dividend and a share repurchase, with $18,000…

Concept explainers

Balance Sheet Regulations

A balance sheet is a financial statement that shows the position of a company's assets and liabilities on a specific date. The balance sheet is prepared after preparing the statement of profit and loss statement (income statement). The balance sheet and other financial statements differ in the sense that the balance sheet shows the financial position at any given point in time. In contrast, the other financial statements show the financial performance over a particular duration.

Question

Suppose Microsoft has no debt and a WACC of 8.7%. The average debt-to-value ratio for the
software industry is 8.6%. What would be its cost of equity if it took on the average amount of
debt for its industry at a cost of debt of 6.4%?
...
The cost of equity is ☐ %. (Round to two decimal places.)

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1: Describe the question

VIEW

Step 2: Calculate the Equity-to-Value Ratio and Cost of Equity

VIEW

Solution

VIEW

Step by step

Solved in 3 steps with 11 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Suppose Microsoft has no debt and a WACC of 8.8%. The average debt-to-value ratio for the software industry is 11.5%. What would be its cost of equity if it took on the average amount of debt for its industry at a cost of debt of 6.3%? The cost of equity is %. (Round to two decimal places.)
Suppose PayPal (PYPL) has no debt and an equity cost of capital of 9%. The average debt-to-value ratio for the credit services industry is 15.1%. What would its cost of equity be if it took on the average amount of debt for its industry at a cost of debt of 6.1%? (Round to two decimal places.)
Suppose Microsoft has no debt and a WACC of 9.3 %. The average debt-to-value ratio for the software industry is 6.7 %. What would be its cost of equity if it took on the average amount of debt for its industry at a cost of debt of 6.4 %?
The Ashwood Company has a long-term debt ratio of 0.50 and a current ratio of 1.60. Current liabilities are $970, sales are $5,175, profit margin is 9.80 percent, and ROE is 17.60 percent. What is the amount of the firm's net fixed assets? Hint: This is another complex problem that requires a number of steps. Remember that CA + NFA=TA. So, if you find CA and TA, then you can solve for NFA Helpful Equations: Long-term debt ratio - LTD/(LTD + TE) CR-CA/CL PM-NI / Sales ROE-NI/TE O $3,851.53 O $3,601.92 O $5,181.07 O $6.733.07 O $2.881.53
A firm has a debt-to-equity ratio of 1.20. If it had no debt, its cost of equity would be 15%. Its cost of debt is 10%. What is its cost of equity if there are no taxes or other imperfections? A. 10% B. 15% C. 18% D. 21% E. None of these.
(Use the following information for the next three questions). Consider a world with taxes but no other market imperfections. BLT machinery has a debt to equity ratio of 2/3. Its cost of equity is 20%, cost of debt is 4%, and tax rate is 35%. Assume that the risk-free rate is 4%, and market risk premium is 8%. Suppose the firm repurchases stock and finances the repurchase with debt, causing its debt to equity ratio to change to 3/2. What is the firm's new cost of equity? None of the choices New cost of equity is 26.05% New cost of equity is 23.59% New cost of equity is 16.32% New cost of equity is 28.00%
Gates Appliances has a return-on-assets (investment) ratio of 20 percent. a. If the debt-to-total-assets ratio is 25 percent, what is the return on equity? (Input your answer as a percent rounded to 2 decima) places.) b. If the firm had no debt, what would the return-on-equity ratio be? (Input your answer as a percent rounded to 2 decimal places.)
Give typing answer with explanation and conclusion A firm currently has a debt-equity ratio of 2/5. The debt, which is virtually riskless, pays an interest rate of 4 %. The expected rate of return on the equity is 13 %. What is the Weighted-Average Cost of Capital if the firm pays no taxes? Enter your answer as a percentage rounded to two decimal places. Do not include the percentage sign in your answer.
Suppose Alcatel-Lucent has an equity cost of capital of 9.2%, market capitalization of $10.95 billion, and an enterprise value of $15 billion. Suppose Alcatel-Lucent's debt cost of capital is 6.9% and its marginal tax rate is 38%. a. What is Alcatel-Lucent's WACC? b. If Alcatel-Lucent maintains a constant debt-equity ratio, what is the value of a project with average risk and the expected free cash flows as shown here,? c. If Alcatel-Lucent maintains its debt-equity ratio, what is the debt capacity of the project in part (b)? a. What is Alcatel-Lucent's WACC? Alcatel-Lucent's WACC is%. (Round to two decimal places.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Year 0 1 FCF ($ million) - 100 50 Print C Done 2 99 3 66 X
Suppose Alcatel-Lucent has an equity cost of capital of 10.4%, market capitalization of $11.52 billion, and an enterprise value of $16 billion. Suppose Alcatel-Lucent's debt cost of capital is 6.6% and its marginal tax rate is 34%. a. What is Alcatel-Lucent's WACC? b. If Alcatel-Lucent maintains a constant debt-equity ratio, what is the value of a project with average risk and the expected free cash flows as shown here, ? c. If Alcatel-Lucent maintains its debt-equity ratio, what is the debt capacity of the project in part (b)? a. What is Alcatel-Lucent's WACC? Alcatel-Lucent's WACC is 9.34 %. (Round to two decimal places.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Year 1 FCF ($ million) 45 Print 0 - 100 Done 2 101 3 66 - X
A firm had a debt ratio of 0.85. The pretax cost of debt is 8% and the reqiured return on asset is 15.5%. What is the cost of equity if we factorin the firms tax rate of 24%? A) 19.53 B) 18.92 C) 21.57 D) 20.35 E) 20.96
Garcia Company has no debt. Its cost of capital is 11.2 percent. Suppose the company converts to a debt-equity ratio of 1. The interest rate on the debt is 8.3 percent. Ignore taxes for this problem. e. What is the company's new cost of equity? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. What is its new WACC? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a. Cost of equity b. WACC % %

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS