A firm's ______ is the combination of debt and equity it uses to finance its assets....
A firm's ______ is the combination of debt and equity it uses to finance its assets.
capital budgeting plan
business risk
asset structure
securitization table
capital structure
Homework Answers
Capital structure talks about how much equity and debt should be used to fund it's assets. Every company tries to maintain the optimal levels of these weights to increase the firm's value.
Option E is correct
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A firm's ______ is the combination of debt and equity it uses to
finance its assets....
QUESTION 2 A company uses only debt and equity to finance its capital budget. The company...
QUESTION 2 A company uses only debt and equity to finance its capital budget. The company uses CAPM to compute the cost of equity and estimates that WACC is 12%. The capital structure of the company is 75% debt and 25% equity. The following additional information is provided: • Risk-free rate- 6%; • Return on the market 14%; • Tax rate 20%; and • Cost of Debt 12.5%. a) Compute the beta of the company?
A firm uses only debt and equity in its capital structure. The firm's weight of debt...
A firm uses only debt and equity in its capital structure. The firm's weight of debt is 75 percent. The firm could issue new bonds at a yield to maturity of 12 percent and the firm has a tax rate of 30 percent. If the firm's WACC is 13 percent, what is the firm's cost of equity? 38.29 percent 36.00 percent 26.80 percent 4.00 percent
Globex Corp. has a capital structure that consists of 35% debt and 65% equity. The firm's...
Globex Corp. has a capital structure that consists of 35% debt and 65% equity. The firm's current beta is 1.10, but management wants to understand Globex Corp's market risk without the effect of leverage. If Globex Corp. has a 45% tax rate, what is its unlevered beta? 0.68 0.77 0.85 0.98 Now consider the case of another company: US Robotics Inc. has a current capital structure of 30% debt and 70% equity. Its current before tax cost of debt is...
Globex Corp. has a capital structure that consists of 40% debt and 60% equity. The firm's...
Globex Corp. has a capital structure that consists of 40% debt and 60% equity. The firm's current beta is 1.10, but management wants to understand Globex Corp.'s market risk without the effect of leverage. If Globex Corp. has a 40% tax rate, what is its unlevered beta? 0.91 0.75 0.79 0.71 Now consider the case of another company: U.S. Robotics Inc. has a current capital structure of 30% debt and 70% equity. Its current before-tax cost of debt is 6%,...
Investors generally finance their investment opportunities (assets) with a combination of loans (debt) and equity shareholders....
Investors generally finance their investment opportunities (assets) with a combination of loans (debt) and equity shareholders. Suppose owner Alex, as a CEO, purchases an asset (e.g., property real estate) expected to go up in value. Instead of paying full price, Alex finances the asset with a loan from Carter Bank and with cash from two college friends, Sam and Chris. Sam wants to invest without having to worry about daily operations and is happy to be a preferred shareholder (PS)...
Arbitra Inc.'s current capital structure is 30% debt and 70% equity. The expected return on its...
Arbitra Inc.'s current capital structure is 30% debt and 70% equity. The expected return on its debt is 5%, its equity Beta is 1.1. The riskfree rate is 2%, and the expected return on the market is 10%. Consider first (in questions (i) and (ii)) the case of perfect capital markets. a) Calculate Arbitra Inc.'s asset Beta and its cost of capital (that is, Arbitra Inc.'s expected return on assets). b) Arbitra Inc. now decides to change its capital structure...
a. What percentage of the firm's assets does the firm finance using debt (liabilities)? b. If...
a. What percentage of the firm's assets does the firm finance using debt (liabilities)? b. If Rogers were to purchase a new warehouse for $1.1 million and finance it entirely with long-term debt, what would be the firm's new debt ratio? Accounts payable $471,000 Notes payable $244,000 Current liabilities $715,000 Long-term debt $1,206,000 Common equity $4,704,000 Total liabilities and equity $6,625,000 PLEASE answer questions a. and b. legibly. Thank you.
Morales Publishing's tax rate is 40%, its beta is 0.8, and it uses no debt. However,...
Morales Publishing's tax rate is 40%, its beta is 0.8, and it uses no debt. However, the CFO is considering moving to a capital structure funded by debt, which produces a beta of 1.8. If the risk-free rate is 1% and the market risk premium is 8%, by how much would the capital structure shift change the firm's cost of equity (in percent)?
Terms Descriptions The level and nature of risk attributable to a firm's activities and operation...
Terms Descriptions The level and nature of risk attributable to a firm's activities and operations, and ignoring the risks associated with the firm's capital structure The situation in which managers have different, and usually better, information about their firm's past, current, and future conditions and prospects, compared to outsiders, such as external investors, creditors, suppliers, and customers A firm's use of relatively high fixed, as opposed to variable, operating costs, such as capital-intensive productive processes instead of labor-intensive methods This...
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...
QUESTION 2 A company uses only debt and equity to finance its capital budget. The company uses CAPM to compute the cost of equity and estimates that WACC is 12%. The capital structure of the company is 75% debt and 25% equity. The following additional information is provided: • Risk-free rate- 6%; • Return on the market 14%; • Tax rate 20%; and • Cost of Debt 12.5%. a) Compute the beta of the company?
Globex Corp. has a capital structure that consists of 35% debt and 65% equity. The firm's current beta is 1.10, but management wants to understand Globex Corp's market risk without the effect of leverage. If Globex Corp. has a 45% tax rate, what is its unlevered beta? 0.68 0.77 0.85 0.98 Now consider the case of another company: US Robotics Inc. has a current capital structure of 30% debt and 70% equity. Its current before tax cost of debt is...
Globex Corp. has a capital structure that consists of 40% debt and 60% equity. The firm's current beta is 1.10, but management wants to understand Globex Corp.'s market risk without the effect of leverage. If Globex Corp. has a 40% tax rate, what is its unlevered beta? 0.91 0.75 0.79 0.71 Now consider the case of another company: U.S. Robotics Inc. has a current capital structure of 30% debt and 70% equity. Its current before-tax cost of debt is 6%,...
Arbitra Inc.'s current capital structure is 30% debt and 70% equity. The expected return on its debt is 5%, its equity Beta is 1.1. The riskfree rate is 2%, and the expected return on the market is 10%. Consider first (in questions (i) and (ii)) the case of perfect capital markets. a) Calculate Arbitra Inc.'s asset Beta and its cost of capital (that is, Arbitra Inc.'s expected return on assets). b) Arbitra Inc. now decides to change its capital structure...
Terms Descriptions The level and nature of risk attributable to a firm's activities and operations, and ignoring the risks associated with the firm's capital structure The situation in which managers have different, and usually better, information about their firm's past, current, and future conditions and prospects, compared to outsiders, such as external investors, creditors, suppliers, and customers A firm's use of relatively high fixed, as opposed to variable, operating costs, such as capital-intensive productive processes instead of labor-intensive methods This...
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...
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