Please solve the following problem using Financial Formulas Only. Please No Excel.
Compute the post-tax cost of debt (kd), using the equation as shown below:
Kd = [{Interest*(1 – Tax rate)}+ {(Maturity value – Redemption value)/ Number of periods}]/ {(Maturity value + Redemption value)/2}
= [{($1,000*9%)*(1 – 0.40)} + {($1,000 – $835.42)/ 22}]/ {($1,000 + $835.42)/2}
= ($54 + $7.4809)/ $917.71
= 6.6994%
Hence, the post-tax Kd is 6.6994%.
Compute the cost of equity (Ke), using the equation as shown below:
Ke = Risk-free rate + {Beta*(Market rate – Risk free rate)}
= 8% + {1.1*(14% - 8%)}
= 14.60%
Hence, Ke is 14.60%.
Compute the weighted average cost of capital (WACC), using the equation as shown below:
WACC = (Kd*Debt percentage) + (Ke*Equity percentage)
= (6.6994%*40%) + (14.60%*60%)
= 11.44%
Thus, the WACC is 11.44%. Hence, the correct option is an option (b)
Please solve the following problem using Financial Formulas Only. Please No Excel. Roberto Inc. is a...
Please solve the following problem using Financial Formulas Only. Please No Excel. Roberto Inc. is a manufacturing company. The company has always followed their ideal capital structure which the management insists is 40% debt and 60% equity capital. The company can issue bonds for 9% coupon rate with 22 years to maturity. The interest is paid semi-annually. The bonds can be issued with a price of $835.42 today. Roberto's marginal tax rate is 40%. For cost of equity, the company...
Please solve the following problem using Financial Formulas Only. Please No Excel. Roberto Inc. is a manufacturing company. The company has always followed their ideal capital structure which the management insists is 40% debt and 60% equity capital. The company can issue bonds for 9% coupon rate with 22 years to maturity. The interest is paid semi-annually. The bonds can be issued with a price of $835.42 today. Roberto's marginal tax rate is 40%. For cost of equity, the company...
Please solve the following problem using Financial Formulas Only. Please No Excel. Roberto Inc. is a manufacturing company. The company has always followed their ideal capital structure which the management insists is 40% debt and 60% equity capital. The company can issue bonds for 9% coupon rate with 22 years to maturity. The interest is paid semi-annually. The bonds can be issued with a price of $835.42 today. Roberto's marginal tax rate is 40%. For cost of equity, the company...
Please solve the following problem using Financial Formulas Only. Please No Excel. Roberto Inc. is a manufacturing company. The company has always followed their ideal capital structure which the management insists is 40% debt and 60% equity capital. The company can issue bonds for 9% coupon rate with 22 years to maturity. The interest is paid semi-annually. The bonds can be issued with a price of $835.42 today. Roberto's marginal tax rate is 40%. For cost of equity, the company...
Please solve the following problem using Financial Formulas Only. Please No Excel. Roberto Inc. is a manufacturing company. The company has always followed their ideal capital structure which the management insists is 40% debt and 60% equity capital. The company can issue bonds for 9% coupon rate with 22 years to maturity. The interest is paid semi-annually. The bonds can be issued with a price of $835.42 today. Roberto's marginal tax rate is 40%. For cost of equity, the company...
Please solve the following problem using Financial Formulas Only. Please No Excel. Roberto Inc. is a manufacturing company. The company has always followed their ideal capital structure which the management insists is 40% debt and 60% equity capital. The company can issue bonds for 9% coupon rate with 22 years to maturity. The interest is paid semi-annually. The bonds can be issued with a price of $835.42 today. Roberto's marginal tax rate is 40%. For cost of equity, the company...
Please solve the following problem WITHOUT USING EXCEL. Please type your answer. Roberto Inc. is a manufacturing company. The company has always followed their ideal capital structure which the management insists is 40% debt and 60% equity capital. The company can issue bonds for 9% coupon rate with 22 years to maturity. The interest is paid semi-annually. The bonds can be issued with a price of $835.42 today. Roberto's marginal tax rate is 40%. For cost of equity, the company...
Please solve the following problem WITHOUT USING EXCEL. Roberto Inc. is a manufacturing company. The company has always followed their ideal capital structure which the management insists is 40% debt and 60% equity capital. The company can issue bonds for 9% coupon rate with 22 years to maturity. The interest is paid semi-annually. The bonds can be issued with a price of $835.42 today. Roberto's marginal tax rate is 40%. For cost of equity, the company uses the CAPM based...
Please, show your work on the following questions. Do not use Excel. Handwritten answers. Thank you Roberto Inc. is a manufacturing company. The company has always followed their ideal capital structure which the management insists is 40% debt and 60% equity capital. The company can issue bonds for 9% coupon rate with 22 years to maturity. The interest is paid semi-annually. The bonds can be issued with a price of $835.42 today. Roberto's marginal tax rate is 40%. For cost...
Please show your work on the next following questions. Do not use Excel, handwritten answers. Thank you Roberto Inc. is a manufacturing company. The company has always followed their ideal capital structure which the management insists is 40% debt and 60% equity capital. The company can issue bonds for 9% coupon rate with 22 years to maturity. The interest is paid semi-annually. The bonds can be issued with a price of $835.42 today. Roberto's marginal tax rate is 40%. For...