Question

Below are five comparable companies that compete in the Widget industry: Company V, Company W, Company X, Company Y, and Company Z. Assume the greater the assets on the balance sheet, the larger the company. Use the financial statement information in the table below to help answer questions 14-17. Company V Company W Company X Company Y Company Z Debt/Equity 0.5385 3.0000 0 .5625 0.4925 4.0000 YTM 8.0% 9.0% 6.0% 6.0% 11.0% Total Assets 100 1060 10001 9701 100 Tax Rate 30.0% 35.0% 35.0% 3 0.0% 30.0% Net Income 26 53 120 194 7 Beta Book Value Dividends 1 .25 65 3 1.35 265 15 1.101 640 40 1.15 650 64 1.40 200 Re 14.3% 15.2% 12.9% 13.4% 15.6%

Answer 1

As per the giverr data, (16) lowest WACC from the above companies .compoy x' has got the lowest cost of debt at 6% with 56% of debt and also the lowest cost of equity at 12.9% :, so, the answer is cu company X. (17) Cyclical industries fortunes fluctuate en swing as per the business cycles and hence their Systematic risk tends to be high. Tbese industries typically have a beta blw I and 1.5. Hence Widget industry is more likely to a cyclical than non cyclical industry. .:: Answer is (B) false.,