a. WACC =Weight of Equity*Cost of Equity+Weight of Debt*Cost of
Debt*(1-Tax Rate) =65%*11.3%+35%*7%*(1-40%) =8.82%
b. Beta =(Cost of equity-Risk free rate)/(Market Return -Risk free
Rate) =(11.3%-5%)/6% =1.05
c. Beta Unlevered =Beta Levered/((1+(1-tax Rate)*Debt/Equity)
=1.05/((1+(1-40%)*35/65) =0.7936 or 0.79
d. Cost of Equity unlevered =Risk free Rate+Beta*Market Risk
Premium =5%+0.7936*6% =9.7616%
Cost of Levered Equity =Cost of Equity Unlevered +(Cost of Equity
Unlevered -Cost of Debt)*Debt/Equity*(1-Tax Rate)
=9.7616%+(9.7616%-7.5%)*45/55*(1-40%) =10.87%
Quantitative Problem: Currently, Meyers Manufacturing Enterprises (MME) has a capital structure consisting of 35% debt and...
Quantitative Problem: Currently, Meyers Manufacturing Enterprises (MME) has a capital structure consisting of 35% debt and 65% equity. MME's debt currently has a 7.4% yield to maturity. The risk-free rate (TRF) is 5.4%, and the market risk premium (rM - PRF) is 6.4%. Using the CAPM, MME estimates that its cost of equity is currently 11.9%. The company has a 40% tax rate. a. What is MME's current WACC? Do not round intermediate calculations. Round your answer to two decimal...
Quantitative Problem: Currently, Meyers Manufacturing Enterprises (MME) has a capital structure consisting of 35% debt and 65% equity. MME's debt currently has a 6.6% yield to maturity. The risk-free rate ) is 4.6, and the market risk premium (H ) is 5.6%. Using the CAPM, MME estimates that its cost of equity is currently 10.5%. The company has a 40% tax rate. What is MME's current WACC? Do not round intermediate calculations. Round your answer to two decimal places B....
Quantitative Problem: Currently, Meyers Manufacturing Enterprises (MME) has a capital structure consisting of 35% debt and 65% equity. MME's debt currently has a 6.9% yield to maturity. The risk-free rate (rp) is 4.9%, and the market risk premium ( - ) is 5.9%. Using the CAPM, MME estimates that its cost of equity is currently 10.9%. The company has a 40% tax rate. a. What is MME's current WACC? Do not round intermediate calculations. Round your answer to two decimal...
Quantitative Problem: Currently, Meyers Manufacturing Enterprises (MME) has a capital structure consisting of 35% debt and 65% equity. MME's debt currently has a 7.3% yield to maturity. The risk-free rate (rRF) is 5.3%, and the market risk premium (rM – rRF) is 6.3%. Using the CAPM, MME estimates that its cost of equity is currently 11.3%. The company has a 40% tax rate. a. What is MME's current WACC? Do not round intermediate calculations. Round your answer to two decimal...
Currently, Meyers Manufacturing Enterprises (MME) has a capital structure consisting of 35% debt and 65% equity. MME's debt currently has a 7% yield to maturity. The risk-free rate (rRF) is 5%, and the market risk premium (rM – rRF) is 6%. Using the CAPM, MME estimates that its cost of equity is currently 11.5%. The company has a 40% tax rate. a. What is MME's current WACC? Do not round intermediate calculations. Round your answer to two decimal places. %...
2. Quantitative Problem: Currently, Meyers Manufacturing Enterprises (MME) has a capital structure consisting of 35% debt and 65% equity. MME's debt currently has a 7% yield to maturity. The risk-free rate (rRF) is 5%, and the market risk premium (rM – rRF) is 6%. Using the CAPM, MME estimates that its cost of equity is currently 11.3%. The company has a 40% tax rate. What would be the company's new WACC if it adopted the proposed change in capital structure?...
Currently, Meyers Manufacturing Enterprises (MME) has a capital structure consisting of 35% debt and 65% equity. MME's debt currently has a 7% yield to maturity. The risk-free rate (rRF) is 5%, and the market risk premium (rM – rRF) is 6%. Using the CAPM, MME estimates that its cost of equity is currently 11.3%. The company has a 40% tax rate. d. What would be the company's new cost of equity if it adopted the proposed change in capital structure?...
Currently, Forever Flowers Inc. has a capital structure consisting of 35% debt and 65% equity. Forever's debt currently has an 8% yield to maturity. The risk-free rate (rRF) is 5%, and the market risk premium (rM - rRF) is 6%. Using the CAPM, Forever estimates that its cost of equity is currently 14%. The company has a 25% tax rate. What is Forever's current WACC? Round your answer to two decimal places. % What is the current beta on Forever's...
Currently, Forever Flowers Inc. has a capital structure consisting of 35% debt and 65% equity. Forever's debt currently has an 8% yield to maturity. The risk-free rate (TRF) is 4%, and the market risk premium (rM - PRF) is 5%. Using the CAPM, Forever estimates that its cost of equity is currently 12.5%. The company has a 40% tax rate. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis...
Currently, Forever Flowers Inc. has a capital structure consisting of 25% debt and 75% equity. Forever's debt currently has an 8% yield to maturity. The risk-free rate (rRF) is 6%, and the market risk premium (rM - rRF) is 7%. Using the CAPM, Forever estimates that its cost of equity is currently 11.5%. The company has a 40% tax rate. Forever's financial staff is considering changing its capital structure to 40% debt and 60% equity. If the company went ahead...