Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
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Question
Chapter 13, Problem 12QAP
a
Summary Introduction
Adequate information:
Bonds outstanding
Common stock outstanding
Beta of the stock
Current price per share
Coupon rate of Bond
Face
Selling rate of Bond
Price of Bond
Term duration of Bond
Number of compounding periods in a year
Risk-free rate
Market risk premium
Tax rate
To compute: Market value capital structure for the company M.
Introduction: The market value refers to the value that reflects the current market projections in the valuation.
b
Summary Introduction
Adequate information:
Bonds outstanding
Common stock outstanding
Beta of the stock
Current price per share
Coupon rate of Bond
Face value of Bond
Selling rate of Bond
Price of Bond
Term duration of Bond
Number of compounding periods in a year
Risk-free rate
Market risk premium
Tax rate
To compute: WACC
Introduction: Weighted average cost of capital (WACC) refers to the cost of capital from various sources such as common stocks, preferred stocks, bonds, etc.
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BC Mining Coloration has 9.3 million shares of common stock outstanding and 127,000 semi-annual bonds outstanding with a face value of $1.000 and a 6 5% coupon rate. The common stock currently sells for $342 per share and has a beta of 1.18, and the bonds have 13 years to maturity and sell for 108% of face value. The market risk premium is 6.9%, T-bills (risk-free) yield 5%, and the company's tax rate is 0% ) What is the fir's market value capital structure? b) Estimate the firm's cost of equity, and after tax cost of debt. (c) Estimate the company's total cost of capital.
12. Finding the WACC Titan Mining Corporation has 6.4 million shares of common stock outstanding and 175,000 6.2 percent
semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $53 per share and has a beta of 1.15; the
bonds have 25 years to maturity and sell for 106 percent of par. The market risk premium is 6.8 percent, T-bills are yielding 3.1 percent,
and the company's tax rate is 22 percent.
a. What is the firm's market value capital structure?
b. If the company is evaluating a new investment project that has the same risk as the firm's typical project, what rate should the firm
use to discount the project's cash flows?
Titan Mining Corporation has 9 million shares of common stock outstanding, 250,000 shares of preferred stock with 6% return, and 105,000 7.5% semiannual bonds outstanding. The common stock currently sells for $34 per share and has a beta of 1.25, the preferred stock currently sells for $91 per share, and bonds have 15 years to maturity and sell for $930. The market risk premium is 8.5%, T-bills are yielding 5%, and Titan Mining’s tax rate is 35%.
If Titan Mining is evaluating a new investment project that has the same risk as the firm’s typical project, what rate (%) should the firm use to discount the project’s cash flows?
Chapter 13 Solutions
Corporate Finance
Ch. 13 - Project Risk If you can borrow all the money you...Ch. 13 - WACC and Taxes Why do we use an aftertax figure...Ch. 13 - SML Cost or Equity Estimation If you use the stock...Ch. 13 - SML Cost or Equity Estimation What are the...Ch. 13 - Prob. 5CQCh. 13 - Cost of Capital Suppose Tom OBedlam, president of...Ch. 13 - Company Risk versus Project Risk Both Dow Chemical...Ch. 13 - Prob. 8CQCh. 13 - Leverage Consider a levered firms projects that...Ch. 13 - Beta What factors determine the beta of a stock?...
Ch. 13 - Prob. 1QAPCh. 13 - Prob. 2QAPCh. 13 - Prob. 3QAPCh. 13 - Prob. 4QAPCh. 13 - Prob. 5QAPCh. 13 - Prob. 6QAPCh. 13 - Prob. 7QAPCh. 13 - Prob. 8QAPCh. 13 - Prob. 9QAPCh. 13 - Prob. 10QAPCh. 13 - Prob. 11QAPCh. 13 - Prob. 12QAPCh. 13 - Prob. 13QAPCh. 13 - Prob. 14QAPCh. 13 - Prob. 15QAPCh. 13 - Prob. 16QAPCh. 13 - Prob. 17QAPCh. 13 - Prob. 18QAPCh. 13 - Prob. 19QAPCh. 13 - Prob. 20QAPCh. 13 - Prob. 21QAPCh. 13 - Prob. 22QAPCh. 13 - Prob. 23QAPCh. 13 - Prob. 24QAPCh. 13 - Prob. 1MCCh. 13 - Prob. 2MCCh. 13 - Go to www.reuters.com and find the list of...Ch. 13 - You now need to calculate the cost of debt for...Ch. 13 - You now have all the necessary information to...Ch. 13 - You used Tesla as a representative company to...
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