Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Chapter 14, Problem 10QP
Taxes and WACC [LO3] Lannister Manufacturing has a target debt–equity ratio of .35. Its
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Taxes and WACC [LO3] Sixx AM Manufacturing has a target debt-equity ratio
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Depreciation 89,300
Costs
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?
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3. Calculating Projected Net Income [LO1]A proposed
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Chapter 14 Solutions
Fundamentals of Corporate Finance
Ch. 14.1 - What is the primary determinant of the cost of...Ch. 14.1 - What is the relationship between the required...Ch. 14.2 - What do we mean when we say that a corporations...Ch. 14.2 - Prob. 14.2BCQCh. 14.3 - Why is the coupon rate a bad estimate of a firms...Ch. 14.3 - How can the cost of debt be calculated?Ch. 14.3 - How can the cost of preferred stock be calculated?Ch. 14.4 - Prob. 14.4ACQCh. 14.4 - Prob. 14.4BCQCh. 14.4 - Under what conditions is it correct to use the...
Ch. 14.5 - Prob. 14.5ACQCh. 14.5 - Prob. 14.5BCQCh. 14.6 - Prob. 14.6ACQCh. 14.6 - Why do you think we might prefer to use a ratio...Ch. 14.7 - What are flotation costs?Ch. 14.7 - How are flotation costs included in an NPV...Ch. 14 - A firm has paid dividends of 1.02, 1.10, 1.25, and...Ch. 14 - Prob. 14.3CTFCh. 14 - Why is the tax rate applied to the cost of debt...Ch. 14 - What approach to a projects costs of capital...Ch. 14 - What is the flotation cost of equity for a firm...Ch. 14 - WACC [LO3] On the most basic level, if a firms...Ch. 14 - Book Values versus Market Values [LO3] In...Ch. 14 - Project Risk [LO5] If you can borrow all the money...Ch. 14 - Prob. 4CRCTCh. 14 - DCF Cost of Equity Estimation [LO1] What are the...Ch. 14 - SML Cost of Equity Estimation [LO1] What are the...Ch. 14 - Prob. 7CRCTCh. 14 - Cost of Capital [LO5] Suppose Tom OBedlam,...Ch. 14 - Company Risk versus Project Risk [LO5] Both Dow...Ch. 14 - Divisional Cost of Capital [LO5] Under what...Ch. 14 - Calculating Cost of Equity [LO1] The Absolute Zero...Ch. 14 - Calculating Cost of Equity [LO1] The Graber...Ch. 14 - Calculating Cost of Equity [LO1] Stock in Daenerys...Ch. 14 - Estimating the DCF Growth Rate [LO1] Suppose...Ch. 14 - Prob. 5QPCh. 14 - Calculating Cost of Debt [LO2] Drogo, Inc., is...Ch. 14 - Calculating Cost of Debt [LO2] Jiminys Cricket...Ch. 14 - Prob. 8QPCh. 14 - Calculating WACC [LO3] Mullineaux Corporation has...Ch. 14 - Taxes and WACC [LO3] Lannister Manufacturing has a...Ch. 14 - Finding the Target Capital Structure [LO3] Famas...Ch. 14 - Book Value versus Market Value [LO3] Dinklage...Ch. 14 - Calculating the WACC [LO3] In Problem 12, suppose...Ch. 14 - WACC [LO3] Fyre, Inc., has a target debtequity...Ch. 14 - Prob. 15QPCh. 14 - Prob. 16QPCh. 14 - SML and WACC [LO1] An all-equity firm is...Ch. 14 - Calculating Flotation Costs [LO4] Suppose your...Ch. 14 - Calculating Flotation Costs [LO4] Caughlin Company...Ch. 14 - WACC and NPV [LO3, 5] Scanlin, Inc., is...Ch. 14 - Flotation Costs [LO4] Pardon Me, Inc., recently...Ch. 14 - Calculating the Cost of Debt [LO2] Ying Import has...Ch. 14 - Calculating the Cost of Equity [LO1] Epley...Ch. 14 - Adjusted Cash Flow from Assets [LO3] Ward Corp. is...Ch. 14 - Adjusted Cash Flow from Assets [LO3] In the...Ch. 14 - Prob. 26QPCh. 14 - Prob. 27QPCh. 14 - Flotation Costs and NPV [LO3, 4] Photochronograph...Ch. 14 - Flotation Costs [LO4] Sheaves Corp. has a...Ch. 14 - Project Evaluation [LO3, 4] This is a...Ch. 14 - Prob. 31QPCh. 14 - Prob. 1MCh. 14 - Cost of Capital for Swan Motors You have recently...Ch. 14 - Prob. 3MCh. 14 - Cost of Capital for Swan Motors You have recently...Ch. 14 - Cost of Capital for Swan Motors You have recently...
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- Finding the Target Capital Structure [LO3] Fama's Llamas has a weighted average cost of capital of 8.9 percent. The company's cost of equity is 12 percent, and its pretax cost of debt is 7.9 percent. The tax rate is 35 percent. What is the company's target debt-equity ratio?arrow_forward1. Pro Forma Statements [LO1] Consider the following simplified financial statements for the Phillips Corporation (assuming no income taxes): Income Statement Sales $23,000 Assets Costs 16,700 Net income $ 6,300 Balance Sheet $15,800 Debt Equity Total $ 5,200 10,600 $15,800 Total $15,800 Phillips has predicted a sales increase of 15 percent. It has predicted that every item on the balance sheet will increase by 15 percent as well. Create the pro forma statements and reconcile them. What is the plug variable here? 2. Pro Forma Statements and EFN [LO1, 2] In the previous question, assume Phillips pays out half of net income in the form of a cash dividend. Costs and assets vary with sales, but debt and equity do not. Prepare the pro forma statements and determine the external financing needed.arrow_forwardCalculating Profi tability Ratios [LO2] Wakers, Inc., has sales of $29 million,total assets of $17.5 million, and total debt of $6.3 million. If the profi t marginis 8 percent, what is net income? What is ROA? What is ROE?arrow_forward
- Calculating Flotation Costs [LO4] Suppose your company needs $24 million to build a new assembly line. Your target debt-equity ratio is .75. The flotation cost for new equity is 7 percent, but the flotation cost for debt is only 3 percent. Your boss has decided to fund the project by borrowing money because the flotation costs are lower and the needed funds are relatively small.a. What do you think about the rationale behind borrowing the entire amount?b. What is your company’s weighted average flotation cost, assuming all equity is raised externally?arrow_forwardRatios and Fixed Assets [LO2] The Maurer Company has a long-term debt ratio of .35 and a current ratio of 1.30. Current liabilities are $955, sales are $7,210, profit margin is 8.3 percent, and ROE is 17.5 percent. What is the amount of the firm's net fixed assets? Profit Margin ILO41 In response to complaints about high prices, a grocery chainarrow_forwardyou tell the president? 9. Taxes and WACC Caddie Manufacturing has a target debt-equity ratio of .45. Its cost of equity is 10.3 percent, and its pretax cost of debt is 6.4 percent. If the tax rate is 21 percent, what is the company's WACC? hog o WACC of 8 05arrow_forward
- H5. A cmpany's tax rate is 40%, its beta is 1.20, and it uses no debt. However, the CFO is considering moving to a capital structure with 25% debt and 75% equity. If the risk-free rate is 5.0% and the market risk premium is 6.0%, by how much would the capital structure shift change the firm's cost of equity? Show proper calculationarrow_forward4.5 Trade-off theory: illustration ICU Window, Inc., is trying to determine its value. The firm value in case of all-equity financed has market value of 50m. The tax rate is 39 percent, interest rate is 10% and cost of capital is 11.5%. The present value of interest tax shields and financial distress costs are respectively 2.5m and 1.25m. A. Following Trade-off theory, what is ICU's estimated value? B. Show graph of optimal debt policy with maximum firm value.arrow_forwardand the company wishes to maintain a constant payout ratio. Next year's sales are projected to What is the external financing needed? 5. EFN [LO2] The most recent financial statements for Assouad, Inc., are shown here: Income Statement Balance Sheet 5 Q Sales $8,700 5,600 $3,100 Current assets Fixed assets $ 4,200 10,400 Costs Taxable income Current liabilities Long-term debt Equity 3,800 Q Taxes (25%) 775 Total $14,600 8,900 Net income $2,325 Total $14,600 Assets, costs, and current liabilities are proportional to sales. Long-term debt and equity are not. The company maintains a constant 40 percent dividend payout ratio. As with every other firm in next year's sales are projected to increase by exactly 15 percent. What is the external financing needed?arrow_forward
- Plz Use excel !!! and show formula A company currently has a WACC of 10.6 percent and no debt. The tax rate is 21 percent. a. What is the company’s current cost of equity? b. If the firm converts to 40 percent debt with a cost of 6%, what will its cost of equity be? And the WACC? c. If the firm converts to 60 percent debt with a cost of 6% , what will its cost of equity be? And the WACC? d. What can you conclude from the values of the cost of equity and WACC obtained in b. and c.arrow_forward9. Calculating WACC [LO3] Targaryen Corporation has a target capital structure of 70 percent common stock, 5 percent preferred stock, and 25 percent debt. Its cost of equity is 10 percent, the cost of preferred stock is 5 percent, and the pretax cost of debt is 6 percent. The relevant tax rate is 23 percent. a. What is the company's WACC? b. The company president has approached you about the company's capital structure. He wants to know why the company doesn't use more preferred stock financing because it costs less than debt. What would you tell the president?arrow_forward7. Calculating Break-Even [LO3] In each of the following cases, calculate the accounting break-even and the cash break-even points. Ignore any tax effects in calculating the cash break-even. Unit Price Unit Variable Cost Fixed Costs Depreciation $2,980 $2,135 $8,100,000 185,000 $3,100,000 183,000 46 41 3 2,770 1,050arrow_forward
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What is WACC-Weighted average cost of capital; Author: Learn to invest;https://www.youtube.com/watch?v=0inqw9cCJnM;License: Standard YouTube License, CC-BY