Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Chapter 12, Problem 20P
Summary Introduction
To determine: The beta of the project.
Introduction:
Beta is an important indicator of the risk of a security. It measures the systematic risk of a risky investment by comparing the risky investment with the average risky asset in the market.
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Q2. Suppose you are the chief financial officer of Toktik Co. and you are trying to
determine the optimal capital structure for the company using the cost of capital
approach. On the day of this exam, you have collected the following company and
market data:
The beta of the company is 2.6;
• 10-year Treasury bond rate is 1.6% and the current market equity risk premium is
6.9%;
• The company's current bond rating is BB by Standard & Poor's;
• The firm currently has 5.2 billion shares outstanding with share price at $120 and
the firm's market value of debt is $264 billion
• The company's marginal tax rate is 35%.
Also you are given the following table concerning the latest information on bond
rating and the corresponding default spread:
Default spread
Rating
AAA
0.69%
AA
0.85%
A+
1.07%
A
1.18%
А-
1.33%
BBB
1.71%
BB+
2.31%
BB
2.77%
B+
4.05%
4.86%
В-
5.94%
ССС
9.46%
CC
9.97%
13.09%
D
17.44%
Required:
a) Briefly explain, by referencing relevant capital structure theories, the mechanisms…
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(SDE). The following are some key statistics of the stock of SDE today (t = 0). SDE is 100% equity financed. Its
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Joe Corp is debating raising more capital of some kind. In order to advise them, you first need to calculate the WACC. Currently, the following exists for Joe Corp.
Current Facts:
Stock Price: $30
5 million shares common stock
$40 million Book Value of Preferred Stock
$50 million market value preferred stock
$100 million book value on debt
Debt is currently worth 110% Book Value
1. Calculate the Weighted Percentages of each type of security
Chapter 12 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 12.1 - According to the CAPM, we can determine the cost...Ch. 12.1 - What inputs do we need to estimate a firms equity...Ch. 12.2 - How do you determine the weight of a stock in the...Ch. 12.2 - Prob. 2CCCh. 12.2 - Prob. 3CCCh. 12.3 - How can you estimate a stocks beta from historical...Ch. 12.3 - How do we define a stocks alpha, and what is its...Ch. 12.4 - Why does the yield to maturity of a firms debt...Ch. 12.4 - Prob. 2CCCh. 12.5 - What data can we use to estimate the beta of a...
Ch. 12.5 - Prob. 2CCCh. 12.6 - Why might projects within the same firm have...Ch. 12.6 - Under what conditions can we evaluate a project...Ch. 12.7 - Prob. 1CCCh. 12.7 - Prob. 2CCCh. 12 - Prob. 1PCh. 12 - Suppose the market portfolio has an expected...Ch. 12 - Prob. 3PCh. 12 - Suppose all possible investment opportunities in...Ch. 12 - Using the data in Problem 4, suppose you are...Ch. 12 - Prob. 6PCh. 12 - Prob. 7PCh. 12 - Suppose that in place of the SP 500, you wanted to...Ch. 12 - Prob. 9PCh. 12 - You need to estimate the equity cost or capital...Ch. 12 - In mid-2012, Ralston Purina had AA-rated, 10-year...Ch. 12 - Prob. 15PCh. 12 - Prob. 16PCh. 12 - Prob. 17PCh. 12 - Your firm is planning to invest in an automated...Ch. 12 - Consider the setting of Problem 18. You decided to...Ch. 12 - Prob. 20PCh. 12 - In mid-2015, Cisco Systems had a market...Ch. 12 - Weston Enterprises is an all-equity firm with two...Ch. 12 - Prob. 24PCh. 12 - Your company operates a steel plant. On average,...Ch. 12 - Prob. 26PCh. 12 - You would like to estimate the weighted average...
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