Various capital structures Charter Enterprises currently has $1.9 million in total assets and is totally equity financed. It is contemplating a change in its capital structure. Compute the amount of debt and equity that would be outstanding if the firm were to shift to each of the following debt ratios: 10%, 20%, 30%, 40%, 50%, 60% and 90% (Note: The amount of total assets would not change.) Is there a limit to the debt ratio's value?

Various capital structures Charter Enterprises currently has $1.9 million in total assets and is totally equity financed. It is contemplating a change in its capital structure. Compute the amount of debt and equity that would be outstanding if the firm were to shift to each of the following debt ratios: 10%, 20%, 30%, 40%, 50%, 60% and 90% (Note: The amount of total assets would not change.) Is there a limit to the debt ratio's value?

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EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 5P

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Various capital structures Charter Enterprises currently has $1.7 million in total assets and is totally equity financed. It is contemplating a change in its capital structure. Compute the amount of debt and equity that would be outstanding if the firm were to shift to each of the following debt ratios: 10%, 20%, 30%, 40%, 50%, 60%, and 90%. (Note: The amount of total assets would not change.) Is there a limit to the debt ratio's value? Calculate the capital structure below: (Round to the nearest dollar.) Equity Debt Ratio 10% $ Debt $ C
Charter Enterprises currently has $1.5 million in total assets and is totally equity financed. It is contemplating a change in its capital structure. Compute the amount of debt and equity that would be outstanding if the firm were to shift to each of the following debt ratios: 10%, 20%, 30%, 40%, 50%, 60%, 90%. (Note: The amount of total assets would not change.) Is there a limit to the debt ratio's value?
B Company stated that its optimal capital structure consists of debt taking up 30% of its total capital. B Company's existing and target capital structure is as shown. Source of Capital Target Weights Existing Weights Cost of Source Long Term Debt 30% 10% 8% Preferred Stock 15% 15% 13% Common Stock Equity 55% 75% 15% 1. Calculate target and existing WACC 2a. Should B Company continue moving towards its target WACC? Why or why not? 2b. How could increasing debt be beneficial for B Comp?
iome Various capital structures Charter Enterprises currently has $1.4 million in total assets and is totally equity financed. It is contemplating a change in its capital structure. Compute the amount of debt and equity that would be outstanding if the firm were to shift to each of the following debt ratios: 10%, 20%, 30%, 40%, 50%, 60%, and 90%. (Note: The amount of total assets would not change.) Is there a limit to the debt ratio's value? Calculate the capital structure below: (Round to the nearest dollar.) nents Debt Ratio Debt Equity "lan 10% 2$ $ on eText media Librai ncial Calculat oter Resource Enter any number in the edit fields and then click Check Answer. amic Study dules Check Answer 7 parts remaining Clear All mmunication Tools P Type here to search
Review this situation: Transworld Consortium Corp. is trying to identify its optimal capital structure. Transworld Consortium Corp. has gathered following financial information to help with the analysis. Debt Ratio 30% 40% 50% 60% 70% Equity Ratio 70% 60% 50% 40% 30% WACC 9.71% 9.55% 10.02% 7.55% 11.30% 10.78% 8.24% 12.80% 11.45% rd Is 6.02% 9.40% 6.75% 9.750% 7.15% 10.60% Which capital structure shown in the preceding table is Transworld Consortium Corp.'s optimal capital structure? Debt ratio= 30%; equity ratio = 70% Debt ratio = Debt ratio = 70%; equity ratio = 30% Debt ratio= 50%; equity ratio = 50% 60%; equity ratio = 40% Debt ratio = 40%; equity ratio = 60%
As a first step, we need to estimate what percentage of MMMs capital comes from debt, preferred stock, and common equity. This information can be found on the firms latest annual balance sheet. (As of year end 2014, MMM had no preferred stock.) Total debt includes all interest-bearing debt and is the sum of short-term debt and long-term debt. a. Recall that the weights used in the WACC are based on the companys target capital structure. If we assume that the company wants to maintain the same mix of capital that it currently has on its balance sheet, what weights should you use to estimate the WACC for MMM? b. Find MMMs market capitalization, which is the market value of its common equity. Using the sum of its short-term debt and long-term debt from the balance sheet (we assume that the market value of its debt equals its book value) and its market capitalization, recalculate the firms debt and common equity weights to be used in the WACC equation. These weights are approximations of market-value weights. Be sure not to include accruals in the debt calculation.
B Company stated that its optimal capital structure consists of debt taking up 30% of its total capital. B Company's existing and target capital structure is as shown. Source of Capital Target Weights Existing Weights Cost of Source Long Term Debt 30% 10% 8% Preferred Stock 15% 15% 13% Common Stock Equity 55% 75% 15% 1. Calculate the existing and target WACC of B Company 2. Would you suggest B Company to increase its long term debt to 80% and decreasing common stock equity to 5% since the cost of debt seems to be lower than equity?
To assist with evaluating potential capital projects, Carrium Insights Inc. is seeking to determine its actual Weighted Average Cost of Capital (WACC). Utilising information from the financial statements, together with current information, the Finance Manager has compiled the following information as it pertains to the company’s capital structure: Debt: Bonds outstanding has a face value of $568,000,currently selling at 95% of par. These bonds have 20 years left to maturityandacoupon rate of 7.55%.(Hint: you can use the lowest multiple of $1,000 for the YTM calculation only) Common stock: 21,000 shares of common stock outstanding with a market price of $63.00.The company just paida dividend of $6.00; for ease of computation, dividends are expected to grow by 5% annually. Preferred stock:The company intends to offer 15,000 shares of preferred stock to the public at a price of $25.00 per share. The intention is to pay an annual dividend of $3.00. Additional Information: ✓The Company’s…
Review this situation: Transworld Consortium Corp. is trying to identify its optimal capital structure. Transworld Consortium Corp. has gathered the following financial information to help with the analysis. Debt Ratio Equity Ratio rdrd rsrs WACC 30% 70% 7.00% 10.50% 8.61% 40% 60% 7.20% 10.80% 8.21% 50% 50% 7.70% 11.40% 8.01% 60% 40% 8.90% 12.20% 8.08% 70% 30% 10.30% 13.50% 8.38% Which capital structure shown in the preceding table is Transworld Consortium Corp.’s optimal capital structure? Debt ratio = 70%; equity ratio = 30% Debt ratio = 60%; equity ratio = 40% Debt ratio = 40%; equity ratio = 60% Debt ratio = 30%; equity ratio = 70% Debt ratio = 50%; equity ratio = 50% Consider this case: Globo-Chem Co. has a capital structure that consists of 30% debt and 70% equity. The firm’s current beta is 1.25, but management wants to understand Globo-Chem Co.’s market risk without the effect of leverage. If…
Review this situation: Universal Exports Inc. is trying to identify its optimal capital structure. Universal Exports Inc. has gathered the following financial information to help with the analysis. Debt Ratio 30% 40% 50% 60% 70% Equity Ratio 70% 60% 50% 40% 30% Id 7.00% 7.20% 7.70% 11.40% 8.90% 12.20% 10.30% 13.50% Is WACC 10.50% 8.61% 10.80% 8.21% 8.01% 8.08% 8.38% Which capital structure shown in the preceding table is Universal Exports Inc.'s optimal capital structure? Debt ratio = 70%; equity ratio = 30% Debt ratio 50%; equity ratio = 50% Debt ratio = 30%; equity ratio = 70% Debt ratio = 40%; equity ratio = 60% Debt ratio= 60%; equity ratio = 40%
EBOOK Terrell Trucking Company is in the process of setting its target capital structure. The CFO believes that the optimal debt-to-capital ratio is somewhere between 20% and 50%, and her staff has compiled the following projections for EPS and the stock price at various debt levels: Projected EPS Debt/Capital Ratio 20% 30 40 50 Projected Stock Price $3.30 $32.00 3.55 38.00 3.70 35.50 3.55 34.00 Assuming that the firm uses only debt and common equity, what is Terrell's optimal capital structure? Choose from the options provided above. Round your answers to two decimal places. % debt % equity At what debt-to-capital ratio is the company's WACC minimized? Choose from the options provided above. Round your answer to two decimal places.
Optimal Capital Structure with HamadaBeckman Engineering and Associates (BEA) is considering a change in itscapital structure. BEA currently has $20 million in debt carrying a rate of8%, and its stock price is $40 per share with 2 million shares outstanding.BEA is a zero-growth firm and pays out all of its earnings as dividends.The firm’s EBIT is $14.933 million, and it faces a 40% federal-plus-statetax rate. The market risk premium is 4%, and the risk-free rate is 6%. BEAis considering increasing its debt level to a capital structure with 40% debt,based on market values, and repurchasing shares with the extra money thatit borrows. BEA will have to retire the old debt in order to issue new debt,and the rate on the new debt will be 9%. BEA has a beta of 1.0.a. What is BEA’s unlevered beta? Use market value D/S (which is the sameas wd/ws) when unlevering.b. What are BEA’s new beta and cost of equity if it has 40% debt?c. What are BEA’s WACC and total value of the firm with 40% debt?