WACC Suppose that Ferry Landings, Inc., Inc. has a capital structure of 40% common equity, 15%...
WACC Suppose that Ferry Landings, Inc., Inc. has a capital structure of 40% common equity, 15% preferred stock, and 45% debt. If the before-tax component costs of common equity, preferred stock and debt are 15%, 10% and 8%, respectively.
What is Ferry Landings, Inc.’s WACC if the firm faces an average tax rate of 30 percent?
Using the WACC equation:
WACC = E/(E+P+D) x RE + P/(E+P+D) x RP + D/(E+P+D) x RD
Where; E = Market value of common equity
P = Market value of preferred stock
D = Market value of Debt
RE = cost of common equity
RP = cost of preferred stock
RD = cost of Debt
Homework Answers
WACC = E/(E+P+D) x RE + P/(E+P+D) x RP + D/(E+P+D) x RD(1 - T)
WACC = (0.40 × 0.15) + (0.15 × 0.10) + (0.45 × 0.08 × (1 - 0.30)
WACC = 0.1002 or 10.02%
Add Answer to:
WACC Suppose that Ferry Landings, Inc., Inc. has a capital
structure of 40% common equity, 15%...
Suppose that B2B, Inc. has a capital structure of 38 percent equity, 15 percent preferred stock,...
Suppose that B2B, Inc. has a capital structure of 38 percent equity, 15 percent preferred stock, and 47 percent debt. Assume the before-tax component costs of equity, preferred stock, and debt are 14.5 percent, 110 percent, and 9.5 percent, respectively, What is B2B's WACC If the firm faces an average tax rate of 21 percent and can make full use of the interest tax shield? (Round your answer to 2 decimal places.) WACC 1028 %
Suppose that B2B, Inc. has a capital structure of 37 percent equity, 18 percent preferred stock,...
Suppose that B2B, Inc. has a capital structure of 37 percent equity, 18 percent preferred stock, and 45 percent debt. Assume the before-tax component costs of equity, preferred stock, and debt are 14.5 percent, 11.0 percent, and 9.5 percent, respectively. What is B2B's WACC if the firm faces an average tax rate of 30 percent? (Round your answer to 2 decimal places.)
The firm's target capital structure is the mix of debt, preferred stock, and common equity the...
The firm's target capital structure is the mix of debt, preferred stock, and common equity the firm plans to raise funds for its future projects. The target proportions of debt, preferred stock, and common equity, along with the cost of these components, are used to calculate the firm's weighted average cost of capital (WACC). If the firm will not have to issue new common stock, then the cost of retained earnings is used in the firm's WACC calculation. However, if...
The firm's target capital structure is the mix of debt, preferred stock, and common equity the...
The firm's target capital structure is the mix of debt, preferred stock, and common equity the firm plans to raise funds for its future projects. The target proportions of debt, preferred stock, and common equity, along with the cost of these components, are used to calculate the firm's weighted average cost of capital (WACC). If the firm will not have to issue new common stock, then the cost of retained earnings is used in the firm's WACC calculation. However, if...
Adjusted WACC. Clark Explorers Inc., an engineering firm, has the following capital structure: Equity Preferred Stock...
Adjusted WACC. Clark Explorers Inc., an
engineering firm, has the following capital structure:
Equity
Preferred Stock
Debt
Market Price
$49.41
$79.61
$970.65
Outstanding units
119,000
14,000
6,224
Book Value
$3,130,000
$1,025,000
$6,224,000
Cost of Capital
16.61%
11.73%
8.8%
Using market value and book value (separately, of course), find
the adjusted WACC for clark explorers at the following tax
rates:
What is the market value adjusted WACC for Clark explorers at a
tax rate of 40%
What is the market value...
Problem 15-11 WACC and Optimal Capital Structure F. Pierce Products Inc. is considering changing its capital structure....
Problem 15-11 WACC and Optimal Capital Structure F. Pierce Products Inc. is considering changing its capital structure. F. Pierce currently has no debt and no preferred stock, but would like to add some debt to take advantage of low interest rates and the tax shield. Its investment banker has indicated that the pre-tax cost of debt under various possible capital structures would be as follows: Market Debt- to-Value Ratio (wd) Market Equity-to-Value Ratio (ws) Market Debt- to-Equity Ratio (D/S) Before-Tax...
Cost of Common Equity and WACC Palencia Paints Corporation has a target capital structure of 40%...
Cost of Common Equity and WACC Palencia Paints Corporation has a target capital structure of 40% debt and 60% common equity, with no preferred stock. Its before-tax cost of debt is 10% and its marginal tax rate is 40%. The current stock price is P0 = $23.50. The last dividend was D0 = $3.75, and it is expected to grow at a 7% constant rate. What is its cost of common equity and its WACC? Round your answers to two...
WACC Olsen Outfitters Inc. believes that its optimal capital structure consists of 70% common equity and...
WACC Olsen Outfitters Inc. believes that its optimal capital structure consists of 70% common equity and 30% debt, and its tax rate is 40%. Olsen must raise additional capital to fund its upcoming expansion. The firm will have $5 million of retained earnings with a cost of r's = 15%. New common stock in an amount up to $7 million would have a cost of re = 19%. Furthermore, Olsen can raise up to $3 million of debt at an...
1. Suppose that TapDance, Inc.’s, capital structure features 65 percent equity, 35 percent debt, and that...
1. Suppose that TapDance, Inc.’s, capital structure features 65 percent equity, 35 percent debt, and that its before-tax cost of debt is 7 percent, while its cost of equity is 12 percent. Assume the appropriate weighted average tax rate is 34 percent. What will be TapDance’s WACC? (Round your answer to 2 decimal places.) 2. Suppose that MNINK Industries’ capital structure features 63 percent equity, 7 percent preferred stock, and 30 percent debt. Assume the before-tax component costs of equity,...
Suppose that JB Cos. has a capital structure of 80 percent equity, 20 percent debt, and...
Suppose that JB Cos. has a capital structure of 80 percent equity, 20 percent debt, and that its before-tax cost of debt is 14 percemt while its cost of equity is 18 percent. Assume the appropriate weighted-average tax rate is 21 percent and JB estimates that they can make full use of the interest tax shield. What will be JB's WACC? (Round your answer to 2 decimal places.) WACC % Suppose that B2B, Inc. has a capital structure of 35...
Suppose that B2B, Inc. has a capital structure of 38 percent equity, 15 percent preferred stock, and 47 percent debt. Assume the before-tax component costs of equity, preferred stock, and debt are 14.5 percent, 110 percent, and 9.5 percent, respectively, What is B2B's WACC If the firm faces an average tax rate of 21 percent and can make full use of the interest tax shield? (Round your answer to 2 decimal places.) WACC 1028 %
Suppose that B2B, Inc. has a capital structure of 37 percent equity, 18 percent preferred stock, and 45 percent debt. Assume the before-tax component costs of equity, preferred stock, and debt are 14.5 percent, 11.0 percent, and 9.5 percent, respectively. What is B2B's WACC if the firm faces an average tax rate of 30 percent? (Round your answer to 2 decimal places.)
The firm's target capital structure is the mix of debt, preferred stock, and common equity the firm plans to raise funds for its future projects. The target proportions of debt, preferred stock, and common equity, along with the cost of these components, are used to calculate the firm's weighted average cost of capital (WACC). If the firm will not have to issue new common stock, then the cost of retained earnings is used in the firm's WACC calculation. However, if...
Adjusted WACC. Clark Explorers Inc., an
engineering firm, has the following capital structure:
Equity
Preferred Stock
Debt
Market Price
$49.41
$79.61
$970.65
Outstanding units
119,000
14,000
6,224
Book Value
$3,130,000
$1,025,000
$6,224,000
Cost of Capital
16.61%
11.73%
8.8%
Using market value and book value (separately, of course), find
the adjusted WACC for clark explorers at the following tax
rates:
What is the market value adjusted WACC for Clark explorers at a
tax rate of 40%
What is the market value...
WACC Olsen Outfitters Inc. believes that its optimal capital structure consists of 70% common equity and 30% debt, and its tax rate is 40%. Olsen must raise additional capital to fund its upcoming expansion. The firm will have $5 million of retained earnings with a cost of r's = 15%. New common stock in an amount up to $7 million would have a cost of re = 19%. Furthermore, Olsen can raise up to $3 million of debt at an...
Suppose that JB Cos. has a capital structure of 80 percent equity, 20 percent debt, and that its before-tax cost of debt is 14 percemt while its cost of equity is 18 percent. Assume the appropriate weighted-average tax rate is 21 percent and JB estimates that they can make full use of the interest tax shield. What will be JB's WACC? (Round your answer to 2 decimal places.) WACC % Suppose that B2B, Inc. has a capital structure of 35...
Most questions answered within 3 hours.
-
What is the source of information from natural materials which
can be used to reconstruct climate...
asked 1 minute ago -
The International Monetary Fund (IMF) has hired you as an
economist. Your assignment is to travel...
asked 5 minutes ago -
Brief Exercise 12-65
Profitability Ratios
Tinker Corporation operates in the highly competitive consulting
industry. Tinker's balance...
asked 30 minutes ago -
Consider Lewin's three-step process. Which of the three steps do
you thin would be hardest to...
asked 30 minutes ago -
A disabled tanker leaks kerosene (n = 1.20) into the
Persian Gulf, creating a large slick...
asked 44 minutes ago -
5. Explain the condition for a DC motor to develop the
maximum power. If a DC...
asked 59 minutes ago -
Compute the p[Ag] after 35.00 mL of 0.1 M silver nitrate has been
added to the...
asked 1 hour ago -
Walgreen Company (NYSE: WAG) is currently trading at $48.50 on
the NYSE. Walgreen Company is also...
asked 1 hour ago -
Based on historical data, your team knows what proportion of the
company's orders come from Males...
asked 1 hour ago -
8. Which of the following atoms has the largest magnitude
electron affinity?
(a) Sodium (Na)
(b)...
asked 1 hour ago -
Assess the two types of tests of cognitive abilities. (
regarding HR course)
asked 1 hour ago -
1.Write an inspiring vision statement for an organization where
you work or have worked. If the...
asked 1 hour ago