You and an entrepreneurial friend decided to start a company to try out a cool idea....
You and an entrepreneurial friend decided to start a company to try out a cool idea. To get started, you need initial capital of $60,000. You can either borrow from a bank, which has an interest rate of 5%. You can also raise money by selling equity of your company, of which you estimate the cost to be 12%.
a) You want to have a debt-to-equity ratio of 1⁄2. How much should you raise by debt and equity, respectively?
b) Determine the weighted average cost of capital (WACC) for your company. Note that interest payment is tax-deductible and the current corporate tax rate is 21%.
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You and an entrepreneurial friend decided to start a company to
try out a cool idea....
Please answer both. Thank you. Vpe Rare Minerals and Metals Inc's capital structure is briefly described...
Please answer both. Thank you.
Vpe Rare Minerals and Metals Inc's capital structure is briefly described below. Compute the company's weighted average cost of capital ("WACC). The company's marginal income tax rate is 25%. Calculate to 4 decimal places. Capital Capital Structure Weights Pre-Tax Cost Bonds 0.35 7.80% Preferred Stock 0.15 11.75% Common Stock 0.50 25.00% 16.57% 16.95% 16,31% 15.12% Question 10 8.55 pts If corporate income tax rates decrease, this change would tend to make a company's weighted average...
Equity Lightning Corp. wishes to explore the effect on its cost of capital of the rate...
Equity Lightning Corp. wishes to explore the effect on its cost of capital of the rate at which the company pays taxes. The firm wishes to maintain a capital structure of 30% debt, 10% preferred stock, and 60% common stock. The cost of financing using retained earnings is 14%, the cost of preferred stock financing is 9%, and the before-tax cost of debt financing is 11%. Calculate the weighted average cost of capital (WACC) given the following tax rate assumptions:...
Company G expects its EBIT to be $92,000 every year forever. The firm can borrow at...
Company G expects its EBIT to be $92,000 every year forever. The firm can borrow at 9%. It currently has no debt, and its cost of equity is 25%. The tax rate is 35%. The firm is considering borrowing $ 60,000 in debt to achieve a new capital structure. a) What is the value of the firm in current capital structure? b) What will the value be if the company borrows $60,000 and uses the proceeds to repurchase shares? c)...
Twist Company Stated operation in the year, 2019. The business assets are financed by both equity...
Twist Company Stated operation in the year, 2019. The business assets are financed by both equity and debt. The values of debt and equity of the business had been represented by Debt: Equity ratio. The ratio of Debt: Equity of Twist Company is 1: 0.4. Additional Information Twist Company Ltd.’s dividend has a beta of 1.223. The risk-free rate is 10% and the market is expected to yield a return of 19%. The cost of debt is 10% and corporate...
For which capital component must you make a tax adjustment when calculating a firm's weighted average...
For which capital component must you make a tax adjustment when calculating a firm's weighted average cost of capital (WACC)? O Debt Preferred stock Equity Perpetualcold Refrigeration Company (PRC) can borrow funds at an interest rate of 10.20% for a period of six years. Its marginal federal-plus-state tax rate is 40%. PRC's after-tax cost of debt is 6.12% (rounded to two decimal places). At the present time, Perpetualcold Refrigeration Company (PRC) has 5-year noncallable bonds with a face value of...
OQ Inc. is an all equity financed company in the country which does not have any...
OQ Inc. is an all equity financed company in the country which does not have any corporate taxes. The company has an EBIT of $2 million and EBIT is expected to grow at 6% per year forever. The cost of equity for OQ Inc. is 18%. Currently, the company has 625,000 shares of common stock outstanding. a. Calculate the value of the firm with its all equity financed capital structure. b. Suppose the company is thinking about changing its capital...
OQ Inc. is an all equity financed company in the country which does not have any...
OQ Inc. is an all equity financed company in the country which does not have any corporate taxes. The company has an EBIT of $2 million and EBIT is expected to grow at 6% per year forever. The cost of equity for OQ Inc. is 18%. Currently, the company has 625,000 shares of common stock outstanding. a. Calculate the value of the firm with its all equity financed capital structure. b. Suppose the company is thinking about changing its capital...
Company A currently has market capitalization (value of its equity) of $9,062.49 million, a debt-...
Company A currently has market capitalization (value of its equity) of $9,062.49 million, a debt-equity ratio of .1822, and a WACC of 4.65%. The government of the country in which Company A operates, Utopia, has no corporate taxes (T=0). The Firm has decided it’s a good time to restructure its capital. It will buy back some of its debt and issue new equity to achieve the industry-average debt-equity ratio of 0.54. What will the Company’s weighted average cost of capital...
10-7: Composite, or Weighted Average, Cost of Capital, WACC WACC Midwest Electric Company (MEC) uses only...
10-7: Composite, or Weighted Average, Cost of Capital, WACC WACC Midwest Electric Company (MEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of rd-11% as long as it financ at its target capital structure, which calls for 35% debt and 65% common equity. Its last dividend (Do) was $2.20, its expected constant growth rate is 396, and its common stock sells for $21. MEC's tax rate is 40%. Two projects are available: Project...
Please answer both. Thank you.
Vpe Rare Minerals and Metals Inc's capital structure is briefly described below. Compute the company's weighted average cost of capital ("WACC). The company's marginal income tax rate is 25%. Calculate to 4 decimal places. Capital Capital Structure Weights Pre-Tax Cost Bonds 0.35 7.80% Preferred Stock 0.15 11.75% Common Stock 0.50 25.00% 16.57% 16.95% 16,31% 15.12% Question 10 8.55 pts If corporate income tax rates decrease, this change would tend to make a company's weighted average...
For which capital component must you make a tax adjustment when calculating a firm's weighted average cost of capital (WACC)? O Debt Preferred stock Equity Perpetualcold Refrigeration Company (PRC) can borrow funds at an interest rate of 10.20% for a period of six years. Its marginal federal-plus-state tax rate is 40%. PRC's after-tax cost of debt is 6.12% (rounded to two decimal places). At the present time, Perpetualcold Refrigeration Company (PRC) has 5-year noncallable bonds with a face value of...
10-7: Composite, or Weighted Average, Cost of Capital, WACC WACC Midwest Electric Company (MEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of rd-11% as long as it financ at its target capital structure, which calls for 35% debt and 65% common equity. Its last dividend (Do) was $2.20, its expected constant growth rate is 396, and its common stock sells for $21. MEC's tax rate is 40%. Two projects are available: Project...
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