Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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- The Tip-Top Paving Co. has an equity cost of capital of 16.97%. The debt to value ratio is .6, the tax rate is 34%, and the cost of debt is 11%. What is the cost of equity if Tip-Top was unlevered? O a. 10.0%. O b. 16.0%. C. 12.0%. O d. 14.0%arrow_forwardCullumber Co. has a capital structure, based on current market values, that consists of 40 percent debt, 19 percent preferred stock, and 41 percent common stock. If the returns required by investors are 9 percent, 11 percent, and 15 percent for the debt, preferred stock, and common stock, respectively, what is Cullumber’s after-tax WACC? Assume that the firm’s marginal tax rate is 40 percent. - After tax 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_forward
- SodaFizz has debt outstanding that has a market value of $3 million. The company’s stock has a book value of $2 million and a market value of $6 million. What are the weights in SodaFizz’s capital structure?arrow_forwardK. Bell Jewelers wishes to explore the effect on its cost of capital of the rate at which the company pays taxes. The firm wishes to maintain a capital structure of 30% debt, 20% preferred stock, and 50% common stock. The cost of financing with retained earnings is 13% the cost of preferred stock financing is 9%, and the before-tax cost of debt financing is 7%. Calculate the weighted average cost of capital (WACC) given a tax rate of 21%.arrow_forwardDillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 35% long-term debt, 20% preferred stock, and 45% common stock equity (retained earnings, new common stock, or both). The firm's tax rate is 21%. Debt The firm can sell for $1030 a 13-year, $1,000-par-value bond paying annual interest at a 7.00% coupon rate. A flotation cost of 2% of the par value is required. Preferred stock 8.5% (annual dividend) preferred stock having a par value of $100 can be sold for $90. An additional fee of $4 per share must be paid to the underwriters. Common stock The firm's common stock is currently selling for $60 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.75 ten years ago to the $5.41 dividend payment, D0, that the company just recently made. If the…arrow_forward
- Pfd Company has debt with a yield to maturity of 7.4%, a cost of equity of 14.2%, and a cost of preferred stock of 9.4%. The market values of its debt, preferred stock, and equity are $11.5 million, $3.5 million, and $15.1 million, respectively, and its tax rate is 21%. 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 WACC is __ % ? (Round to two decimal places.)arrow_forwardA firm is firanced with market values of $295 million in nsk-free debt and $575 million in equity. The firm's asset beta is 0.93. Assume a risk-free rate of 2.5%, a market risk-premium of 6.2% and a tax rate of 25%. Assume the firm's debt beta is 0. What is the firms after- tax weighted average cost of capital? (answer to the fourth decimal place)arrow_forwardWhat is its cost of equity if there are no taxes or other imperfections? The firm has a debt-to-equity ratio of 0.60. Its cost of debt is 8%. Its overall cost of capital is 12%. A) 18% B) 14.4% C) 10%. D) 13.5%arrow_forward
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