ZuoTi.Pro
Question

10. An analyst is trying to determine the capital structure for Big Dawg Incorporated. After some...

10. An analyst is trying to determine the capital structure for Big Dawg Incorporated. After some careful research, the analyst knows the following: --Big Dawg has 1.67 million shares of common stock trading today at $21.00 per share. The book value of Big Dawg common stock is $11.00 million. The cost of equity for the firm is estimated to be 11.00%. --Big Dawg has $8.00 million in long-term debt on its balance sheet. The debt is trading at 91.00% of face value in the market with a yield to maturity of 10.00%. The tax rate facing the firm is 37.00%. What portion is equity in the firm’s capital structure? Submit Answer format: Percentage Round to: 2 decimal places (Example: 9.24%, % sign required. Will accept decimal format rounded to 4 decimal places (ex: 0.0924))

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

Market value of shares = 1670000*21 = 35070000

Market value of debt = 8000000*91% = 7280000

Total capital = 42350000

Weight of equity =35070000 /42350000

= 82.81%

0 0
Add a comment
Know the answer?
Add Answer to:
10. An analyst is trying to determine the capital structure for Big Dawg Incorporated. After some...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Big Dawg Incorporated is trying to estimate its cost of equity capital. The firm believes its...

    Big Dawg Incorporated is trying to estimate its cost of equity capital. The firm believes its beta is 0.94. The current risk free rate in the economy is 1.58%, while the market portfolio risk premium is 5.00%. What is an estimate for the equity cost of capital? Submit Answer format: Percentage Round to: 2 decimal places (Example: 9.24%, % sign required. Will accept decimal format rounded to 4 decimal places (ex: 0.0924)) A company has issued 100,953.00 shares of preferred...

  • Raylan Givens Incorporated has a target capital structure of 27.00% notes payable (debt), 5.00% preferred stock,...

    Raylan Givens Incorporated has a target capital structure of 27.00% notes payable (debt), 5.00% preferred stock, and 68.00% common stock. Currently, banks want 7.00% on their notes, preferred stock owners would like 11.00%, while common stock holders require 14.00%. If the marginal tax rate is 40.00%, find the weighted average cost of capital for Givens. Submit Answer format: Percentage Round to: 2 decimal places (Example: 9.24%, % sign required. Will accept decimal format rounded to 4 decimal places (ex: 0.0924)

  • Big Dawg Incorporated is trying to estimate its cost of equity capital. The firm believes its...

    Big Dawg Incorporated is trying to estimate its cost of equity capital. The firm believes its beta is 1.11. The current risk free rate in the economy is 1.84%, while the market portfolio risk premium is 6.00%. What is an estimate for the equity cost of capital?

  • Georgia Movie Company has a capital structure with 46.00% debt and 54.00% equity. The cost of...

    Georgia Movie Company has a capital structure with 46.00% debt and 54.00% equity. The cost of debt for the firm is 9.00%, while the cost of equity is 13.00%. The tax rate facing the firm is 37.00%. The firm is considering opening a new theater chain in a local college town. The project is expected to cost $12.00 million to initiate in year 0. Georgia Movie expects cash flows in the first year to be $3.11 million, and it also...

  • Consider the following project for Dawg Incorporated: YEAR 0 1 2 3 4 5 Sales $150,000...

    Consider the following project for Dawg Incorporated: YEAR 0 1 2 3 4 5 Sales $150,000 $150,000 $150,000 $150,000 $150,000 Cost of Goods $75,000 $75,000 $75,000 $75,000 $75,000 S&A $30,000 $30,000 $30,000 $30,000 $30,000 Depreciation $30,000 $30,000 $30,000 $30,000 $30,000 Investment in NWC $1,000 $500 $500 $500 $500 $5001 Investment in Gross PPE $150,000 The project will last 5 years and has the same risk as the typical Dawg Incorporated project. The firm has a capital structure of 40.00% debt...

  • Consider the following project for Dawg Incorporated: YEAR 0 1 2 3 4 5 Sales $150,000...

    Consider the following project for Dawg Incorporated: YEAR 0 1 2 3 4 5 Sales $150,000 $150,000 $150,000 $150,000 $150,000 Cost of Goods $65,000 $65,000 $65,000 $65,000 $65,000 S&A $30,000 $30,000 $30,000 $30,000 $30,000 Depreciation $30,000 $30,000 $30,000 $30,000 $30,000 Investment in NWC $1,000 $500 $500 $500 $500 $500 Investment in Gross PPE $150,000 The project will last 5 years and has the same risk as the typical Dawg Incorporated project.  The firm has a capital structure of 30.00% debt and...

  • Consider the following project for Dawg Incorporated: YEAR 0 1 2 3 4 5 Sales $150,000...

    Consider the following project for Dawg Incorporated: YEAR 0 1 2 3 4 5 Sales $150,000 $150,000 $150,000 $150,000 $150,000 Cost of Goods $65,000 $65,000 $65,000 $65,000 $65,000 S&A $30,000 $30,000 $30,000 $30,000 $30,000 Depreciation $30,000 $30,000 $30,000 $30,000 $30,000 Investment in NWC $1,000 $500 $500 $500 $500 $500 Investment in Gross PPE $150,000 The project will last 5 years and has the same risk as the typical Dawg Incorporated project.  The firm has a capital structure of 30.00% debt and...

  • Consider the following project for Dawg Incorporated: YEAR 0 1 2 3 4 5 Sales $150,000...

    Consider the following project for Dawg Incorporated: YEAR 0 1 2 3 4 5 Sales $150,000 $150,000 $150,000 $150,000 $150,000 Cost of Goods $70,000 $70,000 $70,000 $70,000 $70,000 S&A $30,000 $30,000 $30,000 $30,000 $30,000 Depreciation $30,000 $30,000 $30,000 $30,000 $30,000 Investment in NWC $1,000 $500 $500 $500 $500 $500 Investment in Gross PPE $150,000 The project will last 5 years and has the same risk as the typical Dawg Incorporated project.  The firm has a capital structure of 40.00% debt and...

  • A company is trying to estimate the cost of debt for a new project. For their...

    A company is trying to estimate the cost of debt for a new project. For their estimate, they will find the yield to maturity on existing company bonds. They have one outstanding bond issue at the moment that will mature in 15.00 years. The bond pays an annual coupon of 9.00%, with a face value of $1,000. The bond currently trades at 91.00% of face value. What is the yield to maturity on the existing debt? Submit Answer format: Percentage...

  • Duffy Enterprises has issued common stock, preferred stock, and debt to finance its operation. The table...

    Duffy Enterprises has issued common stock, preferred stock, and debt to finance its operation. The table below shows financial information on the firm. 2018 Balance Sheet: Interest bearing deb! $517,152.00 $40,478.00 Preferred stock $750,000.00 Shareholder equity Duffy has publicly traded common stock that has a capitalization currently of $1,503,612.00. An analyst has estimated that the cost of debt for Duffy is 7.00%, the cost of the preferred stock is 8.00%, and the cost of the common equity is 12.00%. Duffy...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT