a. On the basis of the available data please, estimate the cost of equity. b. On the basis of the available data and the information that the tax rate amounts to 19%, please, estimate the value of WACC.
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Q: How would each of the following scenarios affect a firm's cost of debt, r d (l - t), t=tax rate; its…
A: Overview: Weighted average cost of capital (WACC) : Weighted average cost of capital is the mean…
Q: While computing the cost of equity using the formula , rs=D1…
A: The answer is provided below and the no. of words is 143.
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A: After tax cost of debt = Before tax cost * (1 - tax rate) = 10%*(1-.20) = .08 = 8% Cost of equity…
Q: w would each of the following scenarios affect a firm's cost of debt, r d (l - t), t=tax rate; its…
A: Note : As per the guidelines, only first three parts will be answered.
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A: Return on Total Assets = Net Income + Interest Expenses (1-Tax Rate) / Average Total Assets
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A: Weighted Average Cost of Capital is the cost of capital of the companies considered the cost of all…
Q: a) Calculate the weighted average cost of capital using following information: Total Cost of debt =…
A: Since you have asked multiple questions, we will solve the first question for you. If you want any…
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A: The Cost of equity: The required rate of returns that shareholders expect from holding a company's…
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A: i. Total Market Value for the Firm: Excel formula:
Q: Suppose that TapDance, Inc.'s, capital structure features 65 percent equity, 35 percent debt, and…
A:
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A: To specify:Calculation of weighted average cost of capital
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A: Part 1: d. market value of common equity plus the present value of expected future residual income.
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A: Weighted average cost of capital: The weighted average cost of capital is defined as the expected…
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Q: Suppose that JB Cos. has a capital structure of 78 percent equity, 22 percent debt, and that its…
A: formula of wacc: wacc=we×re+wp×rp+wd×rd×1-tax where, we=weight of equitywd=weight of debtwp=weight…
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Q: cost
A: Cost of debt: The term cost of debt can be define as the rate of interest that is paid by the…
Q: Suppose that TapDance, Inc.'s capital structure features 65 percent equity, 35 percent debt, and…
A: FORMULA OF WACC: WACC=WE×RE+WP×RP+WD×RD×1-TAX where, WE=weight of equityWD=weight of debtWP=weight…
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Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
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- Which of the following has the highest interest rate? Select one: a. Corporate Bond O b. Government Bond c. Treasury Bills d. Callable Corporate Bond The ratio that is used to compare the market value between companies is Select one: a. Equity Muitiplier b. EPS c. P/E d. Profit margin You have 50,000BD which you can use to either buy cars or to deposit in a bank account for 1 year. Inflation for the year is estimated to be 7%, and the bank deposit rate is 4.5%. if you had a goal of purchasing as many cars as possible, when should you buy them? Select one: a. Now b. After a year c. After 2 years d. Not enough information to decideConsider the information below relating to the monthly rates of return for two companies X and Y over a period of 4 months: Y 2 xRate of return yRate of Return Date Month 1 -4.76 -4.75 Month 2 5.34 7.65 Month 3 12.09 6.98 Month 4 -2.98 9.65 a) If a firm increases its financial risk by selling a large bond issue that increases its financial leverage explain this assumption? Also what is the relationship between risk and return. Explain with examples.5. Stable Ltd., all equity financed, expects this year’s earnings to be €3 per share paid out at the end of the year. Future net investments are zero. The required rate of return for Stable is 10% annually. Compute the current value of Stable, assume the date is January 1 in the current year.
- You have the following information on a company on which to base your calculations and discussion: Cost of equity capital (rE) = 18.55% Cost of debt (rD) = 7.85% Expected market premium (rM –rF) = 8.35% Risk-free rate (rF) = 5.95% Inflation = 0% Corporate tax rate (TC) = 35% Current long-term and target debt-equity ratio (D:E) = 2:5 a. What are the equity beta (bE) and debt beta (bD) of the firm described above?[Hint: Assume that the above costs of capital have been generated by an appropriate equilibrium model.] b. What is the weighted-average cost of capital (WACC) for this firm at the current debt-equity ratio? c. What would the company’s cost of equity capital become if you unlevered the capital structure (i.e. reduced gearing until there is no debt)Your investments are earning 4% per annum compounded annually. You would like to compare this to the yield on bonds which are quoted on a compounded semi-annual basis. What is the equivalent return that you are earning per annum on a compounded semi-annual basis? (Do not round intermediate calculations. Report your result as a percentage. Round the final answers to 2 decimal places. Omit the % sign in your response. For example, if your answer is 3.21%, just enter 3.21) Numeric ResponseConsider a 1-year treasury bill that currently earns 3.25%. The increase in rates for the above bill is shown as follows: Year Increase in rate 1 year from now 3.6% 2 years from now 3.85% The liquidity premium is as follows: 2-year securities 3-year securities 0.07% 0.15% Assume that if the liquidity premium theory is correct. Calculate the current rate on 3-year Treasury securities.
- Borrower Inc. is currently estimating the value of its bonded indebtedness with the following information: Real risk-free rate is currently estimated at 4.25% The expected inflation premium is at 1.75% Considering the current creditworthiness of Borrower Inc., it's credit spread is estimated at: 2.0% for 3-year maturity instruments 3.0% for 4-year maturity instruments 4.0% for 5-year maturity instruments Borrower Inc. have the following issued bonded indebtedness: Bond A carries a 5-year tenor with a face value of Php500,000 issued 2 years ago carrying a coupon of 8.0% per annum. Bond B carries a 5-year tenor with a face value of Php600,000 issued a year ago carrying a coupon of 10.0% per annum. Bond C carries a 8-year tenor with a face value of Php400,000 issued 3 years ago carrying a coupon of 11.5% per annum. 1. What is the value of Bond A? Clue - correct answer should have a string of number "00" appearing in sequence in any unit until two decimal points. 2. What is the…Consider a share which is currently priced at RM2.06 with gross dividend per share of 4 cent. The dividend which are paid annually, are expected to rise by 3% per annum in future years and the inflation rate is expected to be 2.5% per annum. Calculate, (a) the historic gross dividend yield, (b) the real effective annual rate of return, (c) and the nominal effective annual rate of return.You have the following initial information on Financeur Co. on which to base your calculations and discussion for question 2): • Current long-term and target debt-equity ratio (D:E) = 1:3 • Corporate tax rate (TC) = 30% • Expected Inflation = 1.55% • Equity beta (E) = 1.6325 • Debt beta (D) = 0.203 • Expected market premium (rM – rF) = 6.00% • Risk-free rate (rF) =2.05% 2) Assume now a firm that is an existing customer of Financeur Co. is considering a buyout of Financeur Co. to allow them to integrate production activities. The potential acquiring firm’s management has approached an investment bank for advice. The bank believes that the firm can gear Financeur Co. to a higher level, given that its existing management has been highly conservative in its use of debt. It also notes that the customer’s firm has the same cost of debt as that of Financeur Co. Thus, it has suggested use of a target debtequity ratio of 2:3 when undertaking valuation calculations. a) What would the required…
- You have the following initial information on Financeur Co. on which to base your calculationsand discussion for questions 2):• Current long-term and target debt-equity ratio (D:E) = 1:3• Corporate tax rate (TC) = 30%• Expected Inflation = 1.55%• Equity beta (E) = 1.6325• Debt beta (D) = 0.203• Expected market premium (rM – rF) = 6.00%• Risk-free rate (rF) =2.05%2) Assume now a firm that is an existing customer of Financeur Co. is considering a buyoutof Financeur Co. to allow them to integrate production activities. The potential acquiringfirm’s management has approached an investment bank for advice. The bank believesthat the firm can gear Financeur Co. to a higher level, given that its existing managementhas been highly conservative in its use of debt. It also notes that the customer’s firm hasthe same cost of debt as that of Financeur Co. Thus, it has suggested use of a target debtequity ratio of 2:3 when undertaking valuation calculations.a) What would the required rate of return…(d) Which of the following investments has the highest annual percentage yield (APY)? (Assume that all CDs are of equal risk.) Bank A that pays 8 percent interest compounded quarterly.Bank B that pays 8 percent compounded monthly.Bank C that pays 8.25 percent annually Show your working to justify your decision.1) Assume that the risk-free rate is 7% per annum (continuous compounding) for all maturities. Compute the three-month forward prices of the following assets: i) A share that will distribute a $8 dividend in 2 months and a $12 dividend in six months. The current spot price of the share is $85. ii) The Swiss franc. The current spot price is 1.4 dollars for 1 Swiss franc and the foreign (i.e., the Swiss) risk-free rate is 6% per annum (continuous compounding).