Homework Answers
EV is calculated by discounting the FCFF (Free Cash flow to firm at the WACC or weighted average cost of capital). FCFF for the future is calculated by projecting the future cash flows with respect to a growth rate. So if growth rate is low, then FCFF growth rate will be lower which inturn reduces the Enterprise value or EV of the firm.
Answer is a Low growth rate
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A low value for the forward EV/EBIT ratio can be caused by: a low cost of...
Roger, Inc., has a debt-equity ratio of 2.85. The firm’s weighted average cost of capital is...
Roger, Inc., has a debt-equity ratio of 2.85. The firm’s weighted average cost of capital is 10 percent and its pretax cost of debt is 6 percent. The tax rate is 24 percent. a. What is the company’s cost of equity capital? b. What is the company’s unlevered cost of equity capital? c. What would the company’s weighted average cost of capital be if the company's debt-equity ratio were .25 and 1.85?
A hotel chain has EBIT of $6.9 million. Its unlevered cost of capital is 17.1% and...
A hotel chain has EBIT of $6.9 million. Its unlevered cost of capital is 17.1% and its tax rate is 42%. The firm has debt with both a book and a market value of $4.7 million. This debt has a 3.9% coupon and pays interest annually. What is the firm’s weighted average cost of capital?
Williamson, Inc., has a debt–equity ratio of 2.54. The company's weighted average cost of capital is...
Williamson, Inc., has a debt–equity ratio of 2.54. The company's weighted average cost of capital is 9 percent, and its pretax cost of debt is 7 percent. The corporate tax rate is 40 percent. a. What is the company’s cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Cost of equity capital % b. What is the company’s unlevered cost of equity capital?...
Williamson, Inc., has a debt-equity ratio of 2.47. The company's weighted average cost of capital is...
Williamson, Inc., has a debt-equity ratio of 2.47. The company's weighted average cost of capital is 9 percent, and its pretax cost of debt is 7 percent. The corporate tax rate is 40 percent. a. What is the company's cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Cost of equity capital 20.72 % b. What is the company's unlevered cost of equity capital? (Do not...
Suppose the debt ratio (D/TA) is 10%, the current (before-tax) cost of debt is 8%, the...
Suppose the debt ratio (D/TA) is 10%, the current (before-tax) cost of debt is 8%, the current cost of equity is 16%, and the tax rate is 40%. An increase in the debt ratio to 20% would have decreased the weighted average cost of capital (WACC). true or false?
1. The optimal capital structure has been achieved when the: A) debt-equity ratio is equal to...
1. The optimal capital structure has been achieved when the: A) debt-equity ratio is equal to 1. B) weight of equity is equal to the weight of debt. C) cost of equity is maximized given a pretax cost of debt. D) debt-equity ratio is such that the cost of debt exceeds the cost of equity. E) debt-equity ratio results in the lowest possible weighted average cost of capital. 2. M&M Proposition I with tax implies that the: A) weighted average...
A company with 0 net debt has sales of 10m, EBIT of 2m And net income...
A company with 0 net debt has sales of 10m, EBIT of 2m And net income of 1.8m. Harmonic mean of comparable companies multiples is 1 for EV/Sales, 5 for EV/EBIT and 10 for P/E. What can be the explanations to the high P/E ratio of the peers? A. Comparable companies face low corporate income tax rates. B. are more leveraged C.have lower growth prospects D. ALL
Dickson, Inc., has a debt-equity ratio of 2.6. The firm's weighted average cost of capital is...
Dickson, Inc., has a debt-equity ratio of 2.6. The firm's weighted average cost of capital is 9 percent and its pretax cost of debt is 7 percent. The tax rate is 24 percent. a. What is the company's cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g. 32.16.) b. What is the company's unlevered cost of equity capital? (Do not round intermediate calculations and enter your answer...
Dickson, Inc., has a debt-equity ratio of 2.3. The firm's weighted average cost of capital is...
Dickson, Inc., has a debt-equity ratio of 2.3. The firm's weighted average cost of capital is 11 percent and its pretax cost of debt is 8 percent. The tax rate is 23 percent. a. What is the company's cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the company's unlevered cost of equity capital? (Do not round intermediate calculations and enter your answer...
Dickson, Inc., has a debt-equity ratio of 2.4. The firm's weighted average cost of capital is...
Dickson, Inc., has a debt-equity ratio of 2.4. The firm's weighted average cost of capital is 9 percent and its pretax cost of debt is 7 percent. The tax rate is 25 percent. a. What is the company's cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the company's unlevered cost of equity capital? (Do not round intermediate calculations and enter your answer...
Williamson, Inc., has a debt-equity ratio of 2.47. The company's weighted average cost of capital is 9 percent, and its pretax cost of debt is 7 percent. The corporate tax rate is 40 percent. a. What is the company's cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Cost of equity capital 20.72 % b. What is the company's unlevered cost of equity capital? (Do not...
1. The optimal capital structure has been achieved when the: A) debt-equity ratio is equal to 1. B) weight of equity is equal to the weight of debt. C) cost of equity is maximized given a pretax cost of debt. D) debt-equity ratio is such that the cost of debt exceeds the cost of equity. E) debt-equity ratio results in the lowest possible weighted average cost of capital. 2. M&M Proposition I with tax implies that the: A) weighted average...
Dickson, Inc., has a debt-equity ratio of 2.6. The firm's weighted average cost of capital is 9 percent and its pretax cost of debt is 7 percent. The tax rate is 24 percent. a. What is the company's cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g. 32.16.) b. What is the company's unlevered cost of equity capital? (Do not round intermediate calculations and enter your answer...
Dickson, Inc., has a debt-equity ratio of 2.3. The firm's weighted average cost of capital is 11 percent and its pretax cost of debt is 8 percent. The tax rate is 23 percent. a. What is the company's cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the company's unlevered cost of equity capital? (Do not round intermediate calculations and enter your answer...
Dickson, Inc., has a debt-equity ratio of 2.4. The firm's weighted average cost of capital is 9 percent and its pretax cost of debt is 7 percent. The tax rate is 25 percent. a. What is the company's cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the company's unlevered cost of equity capital? (Do not round intermediate calculations and enter your answer...
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