A firm has a market value of equity of $50,000. It borrows $12,500 at 8%. If the unlevered cost of equity is 18%, what is the firm's cost of equity capital? Assume there are no corporate income taxes
Levered Firm's Cost of equity capital = 18% + (18%-8%) X ($12,500/ $37,500)
= 21.33%
A firm has a market value of equity of $50,000. It borrows $12,500 at 8%. If...
A firm has a market value of equity of $30,000 . It borrows $7500 at a cost of 8%. If the firm’s assets have a cost of capital of 15%, what is the firmʹs cost of equity capital? Assume no taxes. 6.70% 20.10% 23.45% 16.75%
2. An unlevered firm with a market value of $1 million has 50,000 shares outstanding. The firm restructures itself by issuing 200 new par bonds with face value $1,000 and an 8% coupon. The firm uses the proceeds to repurchase outstanding stock. In considering the newly levered versus formerly unlevered firm, what is the breakeven EBIT? Ignore taxes.
a firm has a market capitalization (market value of equity) id $ 18 billion and net debt of $ 3 billion. Calculate the weight of debt in the firm's weighted average cost of capital (WACC) calculation.
Vader Corp. is a firm that generates a perpetual EBIT of $50,000 per year. The firm currently has no debt and has 50,000 shares outstanding. The cost of capital is 10%. The firm is thinking of issuing $200,000 in debt and using the proceeds to repurchase equity. The firm could borrow the funds at 8%. If there are no corporate taxes and M&M Proposition I holds, what would be the market value of Vader Corp. if it issues the debt...
#4. Green Manufacturing is an all equity firm with a current market value of $20,000,000 and 500,000 shares outstanding. The current expected return on the firm's stock is 20%. Green plans to announce that it will issue $2,000,000 of perpetual bonds and use these funds to repurchase equity. The bonds will have a 6% interest rate. After the sale of the bonds and the share repurchase, Green will maintain the new capital structure indefinitely. The corporate tax rate for Green...
8. (Chapter 16) Company Z has perpetual annual EBIT equal to $70 million; a corporate tax rate of 21 percent, outstanding debt with market value $100 million; cost of debt equal to 6 percent; and unlevered cost of capital equal to 15 percent. (Assume the world of MM with taxes.) a. What is the total value of the equity in this firm? b. What is the required return on the (levered) equity? c. What is the WACC?
A levered firm’s cost of equity capital is 15%. The firm has a market value of equity of $15 million and $5 million in outstanding debt at an interest rate of 5%. The corporate tax rate is 35%. What is the firm’s WACC?
Question 1 a. Kappa is an all-equity firm. It has 120,000 shares outstanding, currently worth £20 per share. The unlevered cost of equity is 20%. The firm has decided to issue £1,000,000 of 8% debt, and to use the proceeds to repurchase shares. Assume a 28% corporate tax rate. i. According to Modigliani-Miller Proposition I with corporate taxes, what is the market value of the firm’s equity after the repurchase? (6 marks) ii. What are the firm’s earnings before interest...
A firm has a market capitalization (market value of equity) of $11 Billion and net debt of $3 Billion. Calculate the weight of equity in the firm's weighted average cost of capital (WACC) calculation.
A firm has a market capitalization (market value of equity) of $19 Billion and net debt of $11 Billion. Calculate the weight of equity in the firm's weighted average cost of capital (WACC) calculation. [Note: Enter your answer as a percentage rounded to two decimal places.]