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 14, Problem 13P
Suppose Visa Inc. (V) has no debt and an equity cost of capital of 9.2%. The average debt-to-value ratio for the credit services industry is 13%. What would its
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Suppose PayPal (PYPL) has no debt and an equity cost of capital of 9%. The average debt-to-value ratio for the credit services industry is 15.1%. What would its cost of equity be if it took on the average amount of debt for its industry at a cost of debt of 6.1%? (Round to two decimal places.)
Suppose Microsoft has no debt and a WACC of 8.8%. The average debt-to-value ratio for the software industry is
11.5%. What would be its cost of equity if it took on the average amount of debt for its industry at a cost of debt of 6.3%?
The cost of equity is
%. (Round to two decimal places.)
Suppose Microsoft has no debt and a WACC of 8.7%. The average debt-to-value ratio for the
software industry is 8.6%. What would be its cost of equity if it took on the average amount of
debt for its industry at a cost of debt of 6.4%?
...
The cost of equity is ☐ %. (Round to two decimal places.)
Chapter 14 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 14.1 - How does the risk and cost of capital of levered...Ch. 14.2 - Why are investors indifferent to the firms capital...Ch. 14.2 - What is a market value balance sheet?Ch. 14.2 - In a perfect capital market, how will a firms...Ch. 14.3 - How do we compute the weighted average cost of...Ch. 14.3 - With perfect capital markets, as a firm increases...Ch. 14.4 - If a change in leverage raises a firm's earnings...Ch. 14.4 - True or False: When a firm issues equity, it...Ch. 14.5 - Consider the questions facing Dan Harris, CFO of...Ch. 14.5 - Prob. 2CC
Ch. 14 - Consider a project with free cash flows in one...Ch. 14 - You are an entrepreneur starting a biotechnology...Ch. 14 - Acort Industries owns assets that will have an 80%...Ch. 14 - Wolfrum Technology (WT) has no debt. Its assets...Ch. 14 - Suppose there are no taxes. Firm ABC has no debt,...Ch. 14 - Suppose Alpha Industries and Omega Technology have...Ch. 14 - Prob. 7PCh. 14 - Prob. 8PCh. 14 - Zetatron is an all-equity firm with 100 million...Ch. 14 - Explain what is wrong with the following argument:...Ch. 14 - Consider the entrepreneur described in Section...Ch. 14 - Hardmon Enterprises is currently an all-equity...Ch. 14 - Suppose Visa Inc. (V) has no debt and an equity...Ch. 14 - Prob. 14PCh. 14 - Prob. 15PCh. 14 - Hartford Mining has 50 million shares that are...Ch. 14 - Mercer Corp. has 10 million shares outstanding and...Ch. 14 - In mid-2015 Qualcomm Inc. had 11 billion in debt,...Ch. 14 - Prob. 19PCh. 14 - Prob. 20PCh. 14 - Yerba Industries is an all-equity firm whose stock...Ch. 14 - Prob. 22PCh. 14 - Prob. 23PCh. 14 - Prob. 24P
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- A firm has a debt-to-equity ratio of 1.20. If it had no debt, its cost of equity would be 15%. Its cost of debt is 10%. What is its cost of equity if there are no taxes or other imperfections? A. 10% B. 15% C. 18% D. 21% E. None of these.arrow_forwardA firm has a return on assets of 7.8 percent and a cost of equity of 11.9 percent. What is the pretax cost of debt if the debt–equity ratio is .72? Ignore taxes.arrow_forwardWhat is the cost of equity for a firm where the required return on assets is 15.71%, the cost of debt is 6.92%, and the target debt/equity ratio is 1.19? Ignore taxes. O A) 19.05%arrow_forward
- A firm had a debt ratio of 0.85. The pretax cost of debt is 8% and the reqiured return on asset is 15.5%. What is the cost of equity if we factorin the firms tax rate of 24%? A) 19.53 B) 18.92 C) 21.57 D) 20.35 E) 20.96arrow_forwardGive typing answer with explanation and conclusion If the company were to borrow more (or less), how would that impact the cost of debt and the WACC? Provide a specific assumed example. Weight of Equity 76.10% Weight of Debt 23.90% Cost of Equity 6.98% Cost of Debt 2.55% Tax Rate WACC 5.92%arrow_forwardHere is the problem: Famas's LLamas has a weighted average cost of capital of 7.9%. The company's cost of equity is 11% and its pretaxt cost of debt is 5.8%. The taxt rate is 25%. What is the company's target debt-equity ratio? Here is the solution: Here we have the WACC and need to find the debt-equity ratio of the company. Setting up the WACC equation, we find: WACC = .0790 = .11(E/V) + .058(D/V)(1 – .25) Rearranging the equation, we find: .0790(V/E) = .11 + .058(.75)(D/E) Now we must realize that the V/E is just the equity multiplier, which is equal to: V/E = 1 + D/E .0790(D/E + 1) = .11 + .0435(D/E) Now we can solve for D/E as: .0355(D/E) = .031 D/E = .8732 Question: I need help especifically with the part where they rearrange the equation as: .0790(V/E) = .11 + .058(.75)(D/E). How do they get an inverse (V/E) on the left side without the .11. And how do they get a (D/E) ratio. I understand…arrow_forward
- A firm has a debt-to-equity ratio of 0.50. Its cost of debt is 12%. Its overall cost of capital is 16%. What is its cost of equity if there are no taxes?arrow_forwardGates Appliances has a return-on-assets (investment) ratio of 20 percent. a. If the debt-to-total-assets ratio is 25 percent, what is the return on equity? (Input your answer as a percent rounded to 2 decima) places.) b. If the firm had no debt, what would the return-on-equity ratio be? (Input your answer as a percent rounded to 2 decimal places.)arrow_forwardFirst National Bank has a debt-to-equity ratio of 3. Its weighted average cost of capitalis 12.50% and its cost of debt is 8%. First National Bank is subject to a 25% corporatetax rate.a. What is First National Bank cost of equity?b. What is First National Bank un-levered cost of capital?c. What would be its weighted average cost of capital is debt equity ratio is 0.5? 4? please provide step by steparrow_forward
- What 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_forwardFind the WACC given the following information: A firm has a cost of equity of 8% and cost of debt of 6.5%. The debt - toequity ratio is 0.75. The tax rate is 15%.arrow_forwardThe Tree House has a pretax cost of debt of 6.1 percent and a return on assets of 10.4 percent. The debt–equity ratio is .39. Ignore taxes. What is the cost of equity?arrow_forward
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