Homework Answers
| 1) answer: a. More than 14% |
| This is because cost of average capital is 14%, which are employed, |
| to provide / earn higher income to Shareholders. Thus, shareholders |
| want higher return than 14%. |
| 2) answer: a. R0.30 |
| Because P/E=7 or E = P/7 |
| If current price = R2.10, then E = 2.1/7 = R0.30 |
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If a firm has a cost of capital of 14%, shareholders would want a return on...
If a firm has a P/E of 7, and its current price on the stock exchange...
If a firm has a P/E of 7, and its current price on the stock exchange is R2.10, what is the earnings yield of a single share? Select one: O a. 333.33% o b. 14.29% c. 100% d. 700% Which of the following firms are more likely to have a high debt- equity ratio? Select more than one: a. One with large amounts of fixed assets b. One with extremely volatile cash flows c. One with stable, predictable cash flows...
An analyst has determined that a firm has A payout ratio of 75% A return on...
An analyst has determined that a firm has A payout ratio of 75% A return on equity (ROE) of 18% An earnings per share (EPS) of $5.35 • Sales per share of $342 Expected earnings/ dividends/sales growth of 4.5% Shareholders required retum of 15% The firm's justified price-to-sales ratio (P/S) multiple based on the above fundamentals is closest to: Select one O a 0.471 O b.0.116 c. 0.302 O d. 0.231
A firm has determined its cost of each source of capital and optimal capital structure which...
A firm has determined its cost of each source of capital and optimal capital structure which is composed of the following sources and target market value proportions. Source of capital Target Market Proportions After-tax Cost Long-term Debt 35% 9% Preferred Stock 10 14 Common Stock Equity 55 20 The firm is considering an investment opportunity, which has an internal rate of return of 18 percent. The project should not be considered because its internal rate of return is less than...
Question 8 1 pts The equity cost of capital the return that a firm must offer...
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Intro Ryan Holding's shareholders have provided $4,900,000 of capital to the firm to date by purchasing...
Intro Ryan Holding's shareholders have provided $4,900,000 of capital to the firm to date by purchasing new issues of stock and allowing the company to retain some of its earnings. The firm has 500,000 shares of common stock outstanding, and the current stock price is $28.8. Part 1 IB Attempt 1/10 for 10 pts. How much value has Ryan Holding's management added to shareholder wealth over the years, i.e., what is the company's MVA? No decimals Submit
A firm is worth $100 million and has a cost of capital of 11%. It is...
A firm is worth $100 million and has a cost of capital of 11%. It is all equity financed. If the firm sells $30 million of debt with a 7% promised return and uses it to repurchase part of the firm's stock, what will the firm's cost of capital then be? O Not determinable O 10.4% 9.8% O 11.0%
A firm has positive free cash flow and a net dividend to shareholders that is less...
A firm has positive free cash flow and a net dividend to shareholders that is less than free cash flow. What must it do with the surplus of the free cash flow over the dividend? Explain why it is common that firms with higher return on net operating assets (RONA) also have negative free cash flows. Also, explain why such firms tend to have above-average forward P/E ratio. P/B ratio is often said to indicate...
A3 2.5 Figure 14-1 Suppose that a firm in a competitive market has the following cost...
A3 2.5 Figure 14-1 Suppose that a firm in a competitive market has the following cost curves Refer to Figure 14-1. The firm will earn a positive economic profit in the short run if the market price is above $6.30 less than 56.30 but more than $4.50. less than $4.50 exactly $6.30.
Ford Motor Company is discussing new ways to recapitalize the firm and raise additional capital Its...
Ford Motor Company is discussing new ways to recapitalize the firm and raise additional capital Its current capital structure has a 25% weight in equity, 10% in preferred stock, and 65% in debt. The cost of equity capital is 14%, the cost of preferred stock is 8%, and the pretax cost of debt is 7% What is the weighted average cost of capital for Ford if its marginal tax rate is 35%? cost of preferred stated to corrente O A....
0 Weighted average cost of capital American Exploration, Inc., a natural gas producer, is trying to...
0 Weighted average cost of capital American Exploration, Inc., a natural gas producer, is trying to decide whether to revise its target capital structure. Currently it targets a 50-50 mix of debt and equity, but it is considering a target capital structure with 70% debt. American Exploration currently has 7% after-tax cost of debt and a 14% cost of common stock. The company does not have any preferred stock outstanding. a. What is American Exploration's current WACC? b. Assuming that...
If a firm has a P/E of 7, and its current price on the stock exchange is R2.10, what is the earnings yield of a single share? Select one: O a. 333.33% o b. 14.29% c. 100% d. 700% Which of the following firms are more likely to have a high debt- equity ratio? Select more than one: a. One with large amounts of fixed assets b. One with extremely volatile cash flows c. One with stable, predictable cash flows...
An analyst has determined that a firm has A payout ratio of 75% A return on equity (ROE) of 18% An earnings per share (EPS) of $5.35 • Sales per share of $342 Expected earnings/ dividends/sales growth of 4.5% Shareholders required retum of 15% The firm's justified price-to-sales ratio (P/S) multiple based on the above fundamentals is closest to: Select one O a 0.471 O b.0.116 c. 0.302 O d. 0.231
Question 8 1 pts The equity cost of capital the return that a firm must offer on its stock to compensate equity investors for bearing risk. the price of the firm's stock in the future. the price per share that an investor has to pay in order to purchase the stock today. is another name for the holding period return of a stock.
Intro Ryan Holding's shareholders have provided $4,900,000 of capital to the firm to date by purchasing new issues of stock and allowing the company to retain some of its earnings. The firm has 500,000 shares of common stock outstanding, and the current stock price is $28.8. Part 1 IB Attempt 1/10 for 10 pts. How much value has Ryan Holding's management added to shareholder wealth over the years, i.e., what is the company's MVA? No decimals Submit
A firm is worth $100 million and has a cost of capital of 11%. It is all equity financed. If the firm sells $30 million of debt with a 7% promised return and uses it to repurchase part of the firm's stock, what will the firm's cost of capital then be? O Not determinable O 10.4% 9.8% O 11.0%
A3 2.5 Figure 14-1 Suppose that a firm in a competitive market has the following cost curves Refer to Figure 14-1. The firm will earn a positive economic profit in the short run if the market price is above $6.30 less than 56.30 but more than $4.50. less than $4.50 exactly $6.30.
Ford Motor Company is discussing new ways to recapitalize the firm and raise additional capital Its current capital structure has a 25% weight in equity, 10% in preferred stock, and 65% in debt. The cost of equity capital is 14%, the cost of preferred stock is 8%, and the pretax cost of debt is 7% What is the weighted average cost of capital for Ford if its marginal tax rate is 35%? cost of preferred stated to corrente O A....
0 Weighted average cost of capital American Exploration, Inc., a natural gas producer, is trying to decide whether to revise its target capital structure. Currently it targets a 50-50 mix of debt and equity, but it is considering a target capital structure with 70% debt. American Exploration currently has 7% after-tax cost of debt and a 14% cost of common stock. The company does not have any preferred stock outstanding. a. What is American Exploration's current WACC? b. Assuming that...
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