ZuoTi.Pro
Question

6. Stucco Corp. is an all-equity firm with a cost of capital of 12%. Stucco is considering issuing debt in various amounts to repurchase some of its equity. Stucco can issue debt with a beta of 0.3 costing 7% in any amount up to 75% of its capital structure. Stucco has a beta of 1.0. The tax rate is 25%. Fill out the table below. Debt Ratio Equity Ratio D/E 0% 100% 0% 790 5.25% 12% 12% 1.00 25% 50% 75% Ro (1-Tc) RwACC

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

Table is as below

Debt ratio 0% 25% 50% 75%
Equity ratio 100.00% 75.00% 50.00% 25.00%
D/E 0 0.333333333 1 3
Rd 7% 7% 7% 7%
Rd*(1-T) 0.0525 0.0525 0.0525 0.0525
Re 12% 12% 12% 12%
Rwacc 12.00% 10.31% 8.63% 6.94%
Beta 1 0.3 0.3 0.3

Equity ratio = 100%-Debt ratio

D/E = Debt/Equity

RWACC= Debt ratio* Rd*(1-Tax) + Equity ratio*Re

WORKINGS

AutoSave Book1 Excel (Product Activation Failed) Sign in File Home Insert Draw Page Layout Formulas Data Review View Help Tell me what you want to do Share Calibri General Conditional Fornat as Cell Insert Delete Fornat FormattingTable Styles- 、. Sort & Find & Editing Paste . 녀 . 의 _ . 로三들經垣臣 Merge & Center-5 . % , : Filter Select Clipboard Alignment Number Styles Cells АЗ 0.5 -10096-E3 Debt ratio 0 -10096-C3 C3/C4 0.07 0.25 -10096-D3 D3/D4 0.07 0.75 -10096-F3 -F3/F4 0.07 Equity ratio Rd Rd (1-T Re Rwacc Beta E3/E4 0.07 E6 1-0.25) F6 (1-0.25) 0.12 E3 E7+E4 E8 F3*F7+F4 F8 0.3 C6*(1-0.25) D6 (1-0.25) 0.12 -C3*C7+C4 C8 D3 D7+D4 D8 0.12 0.12 10 0.3 0.3 12 13 14 15 16 17 Sheet1 Ready + 100 A ENG 3:46 AM

0 0
Add a comment
Know the answer?
Add Answer to:
6. Stucco Corp. is an all-equity firm with a cost of capital of 12%. Stucco is...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Hector Enterprises is currently financed with all equity, and its cost of equity capital is 15% debt, and using the mon...

    Hector Enterprises is currently financed with all equity, and its cost of equity capital is 15% debt, and using the money raised through the debt issue to repurchase some of the outstanding shares of common stock. Assume perfect markets A. Suppose Hector issues debt to the point that its debt-equity ratio is .50 What would be Hector's new cost of equity capital? Hector is considering issuing The debt would then have a market yield of 5%.

  • Globex Corp. is an all-equity firm, and it has a beta of 1. It is considering...

    Globex Corp. is an all-equity firm, and it has a beta of 1. It is considering changing its capital structure to 65% equity and 35% debt. The firm’s cost of debt will be 10%, and it will face a tax rate of 25%. What will Globex Corp.’s beta be if it decides to make this change in its capital structure? a)1.40 b)1.47 c)1.26 d)1.54 US Robotics Inc. has a current capital structure of 30% debt and 70% equity. Its current...

  • Globex Corp. currently has a capital structure consisting of 30% debt and 70% equity. However, Globex...

    Globex Corp. currently has a capital structure consisting of 30% debt and 70% equity. However, Globex Corp.’s CFO has suggested that the firm increase its debt ratio to 50%. The current risk-free rate is 3.5%, the market risk premium is 8%, and Globex Corp.’s beta is 1.25. If the firm’s tax rate is 25%, what will be the beta of an all-equity firm if its operations were exactly the same? Now consider the case of another company: US Robotics Inc....

  • Jackson is an all-equity financed firm; its common stock has an expected return of 12%. Jackson...

    Jackson is an all-equity financed firm; its common stock has an expected return of 12%. Jackson plans to issue debt, and use the proceeds to repurchase outstanding shares of common stock. If Jackson issues debt such that its debt-equity ratio becomes .60, the new expected return on equity will be 18%. What will be the market yield of the company's debt? Assume perfect markets.

  • Hardmon Enterprises is currently an all-equity firm with an expected return of 12%. It is considering...

    Hardmon Enterprises is currently an all-equity firm with an expected return of 12%. It is considering a leveraged recapitalization in which it would borrow and repurchase existing shares. a. Suppose Hardmon borrows to the point that its debt-equity ratio is 0.50. With this amount of debt, the debt cost of capital is 5%. What will the expected return of equity be after this transaction? b. Suppose instead Hardmon borrows to the point that its debt-equity ratio is 1.50. With this...

  • Remex? (RMX) currently has no debt in its capital structure. The beta of its equity is...

    Remex? (RMX) currently has no debt in its capital structure. The beta of its equity is 1.28. For each year into the indefinite? future, Remex's free cash flow is expected to equal ?$23 million. Remex is considering changing its capital structure by issuing debt and using the proceeds to buy back stock. It will do so in such a way that it will have a 25?% ?debt-equity ratio after the? change, and it will maintain this? debt-equity ratio forever. Assume...

  • I am confused about this problem. Thank you! LevBuyout Corp is an all equity firm. It has 20 million shares. EBIT is exp...

    I am confused about this problem. Thank you! LevBuyout Corp is an all equity firm. It has 20 million shares. EBIT is expected to be $75 million in one year, and to grow by 5% per year in perpetuity. LevBuyout's (equity) beta is 0.8, the risk-free rate is 3%, and the market risk premium is 10%. The corporate tax rate is 20%. LevBuyout is considering doing a leveraged recapitalization, i.e., issuing debt to buy back some shares. (a) What is...

  • 19. A firm has a cost of debt of 6 percent and a cost of equity...

    19. A firm has a cost of debt of 6 percent and a cost of equity of 13.7 percent. The debt–equity ratio is 1.02. There are no taxes. What is the firm's weighted average cost of capital? 20. Hotel Cortez is an all-equity firm that has 5,500 shares of stock outstanding at a market price of $15 per share. The firm's management has decided to issue $30,000 worth of debt and use the funds to repurchase shares of the outstanding...

  • Assignment 13-Capital Structure and Leverage <Back to Assignment Attempts: Keep the Highest: /6 6. Determining the...

    Assignment 13-Capital Structure and Leverage <Back to Assignment Attempts: Keep the Highest: /6 6. Determining the optimal capital structure Aa Aa Understanding the optimal capital structure 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 Equity Ratio EPS DPS Stock Price 30% 70% 1.25 0.55 36.25 40% 60% 1.40 0.60 37.75 50% 50% 1.60 0.65 39.50 60% 40% 1.85...

  • 11. Determining the optimal capital structure Understanding the optimal capital structure Review this situation: Universal Exports...

    11. Determining the optimal capital structure Understanding the optimal capital structure 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 Equity Ratio rdrd rsrs WACC 30% 70% 6.02% 9.40% 9.71% 40% 60% 6.75% 9.750% 9.55% 50% 50% 7.15% 10.60% 10.02% 60% 40% 7.55% 11.30% 10.78% 70% 30% 8.24% 12.80% 11.45% Which capital structure shown in the preceding table is...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT