Homework Answers
Market Value of Debt = $15,000,000
Market Value of Equity = Shares Outstanding * Current share price(P0)
= 2,000,000 * $10.50 = $21,000,000
Total Market Value = Market Value of Debt + Market Value of Equity
= $15,000,000 + $21,000,000 = $36,000,000
a). Weight of Debt = Market Value of Debt / Total Market Value
= $15,000,000 / $36,000,000 = 0.4167, or 41.67%
b). Weight of Equity = Market Value of Equity / Total Market Value
= $21,000,000 / $36,000,000 = 0.5833, or 58.33%
c). According to the CAPM,
Cost of Equity = Risk-free Rate + [Beta * (Expected Market Return - Risk-free Rate)]
= 4% + [1.25 * (10% - 4%)] = 4% + [1.25 * 6%] = 4% + 7.50% = 11.50%
Add Answer to:
30 points. The chief financial officer of Soldier Tire has given you the assignment related to...
Maria Gonzalez, Ganado's Chief Financial Officer, estimates the risk-free rate to be 3.80 %3.80%, the company's...
Maria Gonzalez, Ganado's Chief Financial Officer, estimates the risk-free rate to be 3.80 %3.80%, the company's credit risk premium is 3.703.70%, the domestic beta is estimated at 0.980.98, the international beta is estimated at 0.810.81, and the company's capital structure is now 4545% debt. The before-tax cost of debt estimated by observing the current yield on Ganado's outstanding bonds combined with bank debt is 8.508.50% and the company's effective tax rate is 3939%. Calculate both the CAPM and ICAPM weighted...
Ganado and Equity Risk Premiums. Maria Gonzalez, Ganado's Chief Financial Officer, estimates the risk-free rate to...
Ganado and Equity Risk Premiums. Maria Gonzalez, Ganado's Chief Financial Officer, estimates the risk-free rate to be 3.30 % the company's credit risk premium is 3.80%,the domestic beta is estimated at 0.93 the international beta is estimated at 0.75, and the company's capital structure is now 75% debt. The before-tax cost of debt estimated by observing the current yield on Ganado's outstanding bonds combined with bank debt is 7.80% and the company's effective tax rate is 30%. Calculate both the...
Ganado's Cost of Capital, Maria Gonzalez, Ganado's Chief Financial Officer, estimates the risk-free rate to be 3.30%, the company's credit risk premium is 3.80%, the domestic beta is esti...
Ganado's Cost of Capital, Maria Gonzalez, Ganado's Chief Financial Officer, estimates the risk-free rate to be 3.30%, the company's credit risk premium is 3.80%, the domestic beta is estimated at 0.93, the international beta is estimated at 0.72, and the company's capital structure is now 45% debt. The expected rate of return on the market portfolio held by a well-diversified domestic investor is 9.40% and the expected return on a larger globally integrated equity market portfolio is 8.60%. The before-tax...
Company A has a target capital structure of 30 percent common stock, 5 percent preferred stock,...
Company A has a target capital structure of 30 percent common stock, 5 percent preferred stock, and 65 percent debt. Its cost of equity is 18 percent, the cost of preferred stock is 6.5 percent, and the after-tax cost of debt is 8.5 percent. What is the firm's WACC given a tax rate of 39 percent? 12.50 percent 10.50 percent 9.095 percent 10.431 percent 11.25 percent
Mr. Jack Tan, the Chief Executive Officer of RonSIM Industries Limited, is not clear on what...
Mr. Jack Tan, the Chief Executive Officer of RonSIM Industries
Limited, is not clear on what the Company’s cost of capital is.
RonSIM Industries Limited last dividend was $0.30 cents per share
and the dividend is expected to grow at 5% per annum indefinitely.
The stock is currently trading on Singapore Exchange at $4.70 per
share.
(a) Calculate the cost of equity using the Capital Asset Pricing
Model (“CAPM”) and Dividend Growth Model (“DGM”).
(b) Calculate the weighted average cost...
3- Your company is estimating its WACC. Its target capital structure is 30 percent debt, 10 perce...
3- Your company is estimating its WACC. Its target capital structure is 30 percent debt, 10 percent preferred stock, and 60 percent common equity. Its bonds have an 8 percent coupon, paid quarterly, a current maturity of 15 years, and sell for $895. The firm could sell, at par, $100 preferred stock which pays $10 annual dividend, but flotation costs of 5 incurred if the company will ssue new preferred stocks. This company's beta is 1.3, the risk-free rate is...
You have just been hired as the CFO (chief financial officer) of D.W.O.T.T. Inc. Congratulations!!! I...
You have just been hired as the CFO (chief financial officer) of D.W.O.T.T. Inc. Congratulations!!! I am so super proud of you! Now get to work! You have lots to do because the last guy was lazy and good for nothing. Don’t worry, you have his face on a dart board in your office. The president of the DWOTT has given you a fairly large ‘to do’ list and wants it ASAP. So you load up on Monster Energy drinks...
27) If a firm has excess capacity when calculating AFN (Additional Funds Needed), A* will most...
27) If a firm has excess capacity when calculating AFN (Additional Funds Needed), A* will most likely equal which of the following? A) Total assets B) Current assets C) Fixed assets D) Lumpy assets 28) The additional funds needed by the firm can be calculated by assuming which of the following? A) The firm's additional sales will grow proportionately as assets are purchased. B) The firm's additional capital needed will grow proportionately with projected changes in sales. C) The firm's...
(20 marks) Question 2 on company has asked its chief financial officer to measure the of each specific form of c...
(20 marks) Question 2 on company has asked its chief financial officer to measure the of each specific form of capital as well as its weighted average cost of asured using the following weights A construction cost capital. The weighted average cost is mea term debt, 10% preferred stock and 50% common stock equity. The company's tax rate is 40%. Debt Company selles $980, a 10 year, $1,000 par value bond that pays a 10% coupon rate annually. Floatation cost...
Prosien 5! (30 points) Box Corporation has 80,500 shares of common stock outstanding at a market...
Prosien 5! (30 points) Box Corporation has 80,500 shares of common stock outstanding at a market price of $28 per share. The firm has also 30,000 bonds outstanding, paying a 6.5% coupon each, and currently selling at 94 percent of par value. The current yield to maturity on thos6 8.5% (pre-tax cost of debt). The tax rate paid by the company is 40%. rate, with a face value of $100 bonds is The beta of the company's stock is 1.82...
Ganado's Cost of Capital, Maria Gonzalez, Ganado's Chief Financial Officer, estimates the risk-free rate to be 3.30%, the company's credit risk premium is 3.80%, the domestic beta is estimated at 0.93, the international beta is estimated at 0.72, and the company's capital structure is now 45% debt. The expected rate of return on the market portfolio held by a well-diversified domestic investor is 9.40% and the expected return on a larger globally integrated equity market portfolio is 8.60%. The before-tax...
Mr. Jack Tan, the Chief Executive Officer of RonSIM Industries
Limited, is not clear on what the Company’s cost of capital is.
RonSIM Industries Limited last dividend was $0.30 cents per share
and the dividend is expected to grow at 5% per annum indefinitely.
The stock is currently trading on Singapore Exchange at $4.70 per
share.
(a) Calculate the cost of equity using the Capital Asset Pricing
Model (“CAPM”) and Dividend Growth Model (“DGM”).
(b) Calculate the weighted average cost...
3- Your company is estimating its WACC. Its target capital structure is 30 percent debt, 10 percent preferred stock, and 60 percent common equity. Its bonds have an 8 percent coupon, paid quarterly, a current maturity of 15 years, and sell for $895. The firm could sell, at par, $100 preferred stock which pays $10 annual dividend, but flotation costs of 5 incurred if the company will ssue new preferred stocks. This company's beta is 1.3, the risk-free rate is...
(20 marks) Question 2 on company has asked its chief financial officer to measure the of each specific form of capital as well as its weighted average cost of asured using the following weights A construction cost capital. The weighted average cost is mea term debt, 10% preferred stock and 50% common stock equity. The company's tax rate is 40%. Debt Company selles $980, a 10 year, $1,000 par value bond that pays a 10% coupon rate annually. Floatation cost...
Prosien 5! (30 points) Box Corporation has 80,500 shares of common stock outstanding at a market price of $28 per share. The firm has also 30,000 bonds outstanding, paying a 6.5% coupon each, and currently selling at 94 percent of par value. The current yield to maturity on thos6 8.5% (pre-tax cost of debt). The tax rate paid by the company is 40%. rate, with a face value of $100 bonds is The beta of the company's stock is 1.82...
Most questions answered within 3 hours.
-
Mr. and Mrs. Brown report taxable income of $130,000 in 2018. In
addition, they report the...
asked 1 hour ago -
You capture data by having 8 people fill in 30 small dots on a
piece of...
asked 4 hours ago -
What are the z-values such that 70% of the area lies in the
middle of the...
asked 6 hours ago -
You borrow $29,500 to purchase a brand new car. The interest
rate is 6%, and the...
asked 6 hours ago -
The amount of time it takes an asteroid, whose average distance
from the Sun is 4.70...
asked 6 hours ago -
A 0.289 kg mass slides on a frictionless floor with a speed of
1.34 m/s. The...
asked 6 hours ago -
15.A box contains five red balls, three green balls, and two
yellow balls. Suppose you select...
asked 9 hours ago -
Assume you are given the following for Stackelberg industries:
Return on Assets (ROA) = 8%
Debt...
asked 8 hours ago -
an engineer proposes to use mmWave in 5G network to
increase data rate.
What are the...
asked 8 hours ago -
Explain the idea behind using SEMIJOIN in distributed
query processing.
asked 8 hours ago -
why
is context important in selecting and applying guidelines and
principles for interface design?
illustrate your...
asked 8 hours ago -
In a certain board game, a player rolls two fair six-sided dice
until the player rolls...
asked 9 hours ago