Homework Answers
27. The debt/ equity ratio is given as 1.5 ok.
We are considering that equity is 1 over here and debt is 1.5. As we calculate the weight of debt which is
Debt/ total assets,
The total assets here is 1.5 + 1 = 2.5
So, weight of debt is 1.5/2.5 = 60%
I hope it is clear to you now !!!
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please explain how the weight of debt is caculated below specially
how the 2.5 was found...
please explain how the current unleveraged beta was caculated below. The example when typed in caculator...
please explain how the current unleveraged beta was caculated
below. The example when typed in caculator isnt giving me the same
answer.
6. AB Company has a debt-equity ratio (D/E) of 0.6, and its current leveraged beta (BL) is 1. If the company changes its debt-equity ratio to 0.4, what would be AB Company's new le )? The company's current unleveraged beta (Bu) is calculated as follows: Bu = Bu[1 + (1 - T)(D/E)] => 1.5 = By [1 +...
please explain how this answer was caculated using a caculator 4. CF Company has a capital...
please explain how this answer was caculated using a
caculator
4. CF Company has a capital structure of debt of $300,000 and equity of $700,000. The company's unleveraged beta (Bu) is 1.0, and its tax rate is 40%. What would be CF Company's leveraged beta (B.)? Bl=Bu[1 + (1 - 1)(D/E)] = 1.0[1 + 0.6(300,000/700,000)] = 1.26
Suppose the debt to equity ratio is 2.5 Risk free rate is 3% Equity risk premium...
Suppose the debt to equity ratio is 2.5 Risk free rate is 3% Equity risk premium is 7%, Beta is 2.0, Cost of debt capital is 5.5%, Effective corporate tax rate is 29%, What is the after-tax WACC?
1. The optimal capital structure has been achieved when the: A) debt-equity ratio is equal to...
1. The optimal capital structure has been achieved when the: A) debt-equity ratio is equal to 1. B) weight of equity is equal to the weight of debt. C) cost of equity is maximized given a pretax cost of debt. D) debt-equity ratio is such that the cost of debt exceeds the cost of equity. E) debt-equity ratio results in the lowest possible weighted average cost of capital. 2. M&M Proposition I with tax implies that the: A) weighted average...
7. Capital structure theory Aa Aa E As a firm takes on more debt, its probability...
7. Capital structure theory Aa Aa E As a firm takes on more debt, its probability of bankruptcy | faces a chance of bankruptcy. Therefore, when debt than a more stable firm. When bankruptcy d Other factors held constant, a firm whose earnings are relatively volatile decreases are held constant, a firm whose earnings are relatively volatile should use increases hore important, they the tax benefits of debt. Green Goose Automation Company currently has no debt in its capital structure,...
As a firm takes on more debt, its probability of bankruptcy Other factors held constant, a...
As a firm takes on more debt, its probability of bankruptcy Other factors held constant, a firm whose earnings are relatively volatile faces a chance of bankruptcy. Therefore, when other factors are held constant, a firm whose earnings are relatively volatile should use debt than a more stable firm. When bankruptcy costs become more important, they the tax benefits of debt. Green Goose Automation Company currently has no debt in its capital structure, but it is considering using some debt...
Please show and explain how to get both answers below, 2. No Debt. Inc. is an...
Please show and explain how to get both answers below,
2. No Debt. Inc. is an a equityf m with a 130% costo capital. The company is expected to maintain a perpetual cash flow. It is lookingto add leverageand chang its capital structure to 40%debt, 60% equity. If the cost ofdebt is 6%, there is no risk of default, and the tax rate is 20%, what is the new levered cost of equity and WACC? Answers 1. WACC = 8.81%;...
Blue Ram Brewing Company currently has no debt in its capital structure, but it is considering...
Blue Ram Brewing Company currently has no debt in its capital structure, but it is considering using some debt and reducing its outstanding equity. The firm's unlevered beta is 1.15, and its cost of equity is 11.55%. Because the firm has no debt in its capital structure, its weighted average obst of capital (WACC) also equals 11.55%. The risk-free rate of interest (TRF) is 3.5%, and the market risk premium (RPM) is 7%. Blue Rar's marginal tax rate is 25%...
Under the assumptions of Modigliani and Miller's original paper, a firm's stock price will be maximized...
Under the assumptions of Modigliani and Miller's original paper, a firm's stock price will be maximized at 100% Signaling theory implies that a firm with extremely favorable prospects will be more likely to issue to fund any new projects. When a firm announces a new stock offering, the price of its stock will usually . When information is , managers have more information about a firm's prospects than investors do. Blue Ram Brewing Company currently has no debt in its...
Bryant Co. has $1.1 million of debt, $3 million of preferred stock, and $2.1 million of common equity. What would be its weight on debt?
The calculation of WACC involves calculating the weighted average of the required rates of return on debt, preferred stock, and common equity, where the weights equal the percentage of each type of financing in the firm’s overall capital structure.rsrs is the symbol that represents the cost of raising capital through retained earnings in the weighted average cost of capital (WACC) equation.Bryant Co. has $1.1 million of debt, $3 million of preferred stock, and $2.1 million of common equity. What would...
please explain how the current unleveraged beta was caculated
below. The example when typed in caculator isnt giving me the same
answer.
6. AB Company has a debt-equity ratio (D/E) of 0.6, and its current leveraged beta (BL) is 1. If the company changes its debt-equity ratio to 0.4, what would be AB Company's new le )? The company's current unleveraged beta (Bu) is calculated as follows: Bu = Bu[1 + (1 - T)(D/E)] => 1.5 = By [1 +...
please explain how this answer was caculated using a
caculator
4. CF Company has a capital structure of debt of $300,000 and equity of $700,000. The company's unleveraged beta (Bu) is 1.0, and its tax rate is 40%. What would be CF Company's leveraged beta (B.)? Bl=Bu[1 + (1 - 1)(D/E)] = 1.0[1 + 0.6(300,000/700,000)] = 1.26
1. The optimal capital structure has been achieved when the: A) debt-equity ratio is equal to 1. B) weight of equity is equal to the weight of debt. C) cost of equity is maximized given a pretax cost of debt. D) debt-equity ratio is such that the cost of debt exceeds the cost of equity. E) debt-equity ratio results in the lowest possible weighted average cost of capital. 2. M&M Proposition I with tax implies that the: A) weighted average...
7. Capital structure theory Aa Aa E As a firm takes on more debt, its probability of bankruptcy | faces a chance of bankruptcy. Therefore, when debt than a more stable firm. When bankruptcy d Other factors held constant, a firm whose earnings are relatively volatile decreases are held constant, a firm whose earnings are relatively volatile should use increases hore important, they the tax benefits of debt. Green Goose Automation Company currently has no debt in its capital structure,...
As a firm takes on more debt, its probability of bankruptcy Other factors held constant, a firm whose earnings are relatively volatile faces a chance of bankruptcy. Therefore, when other factors are held constant, a firm whose earnings are relatively volatile should use debt than a more stable firm. When bankruptcy costs become more important, they the tax benefits of debt. Green Goose Automation Company currently has no debt in its capital structure, but it is considering using some debt...
Please show and explain how to get both answers below,
2. No Debt. Inc. is an a equityf m with a 130% costo capital. The company is expected to maintain a perpetual cash flow. It is lookingto add leverageand chang its capital structure to 40%debt, 60% equity. If the cost ofdebt is 6%, there is no risk of default, and the tax rate is 20%, what is the new levered cost of equity and WACC? Answers 1. WACC = 8.81%;...
Blue Ram Brewing Company currently has no debt in its capital structure, but it is considering using some debt and reducing its outstanding equity. The firm's unlevered beta is 1.15, and its cost of equity is 11.55%. Because the firm has no debt in its capital structure, its weighted average obst of capital (WACC) also equals 11.55%. The risk-free rate of interest (TRF) is 3.5%, and the market risk premium (RPM) is 7%. Blue Rar's marginal tax rate is 25%...
Under the assumptions of Modigliani and Miller's original paper, a firm's stock price will be maximized at 100% Signaling theory implies that a firm with extremely favorable prospects will be more likely to issue to fund any new projects. When a firm announces a new stock offering, the price of its stock will usually . When information is , managers have more information about a firm's prospects than investors do. Blue Ram Brewing Company currently has no debt in its...
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