Company C has a capital structure consisting of 60% equity and 40% debt. The before-tax cost of debt is 5%, while the cost of equity is 11%. If the appropriate weighted average tax rate is 21%, what would Company C’s Weighted Average Cost of Capital (WACC) be? How would your answer change if Company C is NOT able to make use of the interest tax shield?
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A: Pretax cost of debt can be calculated through the WACC equation and debt-equity ratio. Here…
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A: The provided information are: Weight of equity in capital structure (WE)= 78% = 0.78 Weight of debt…
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A: WACC = (Weight of common stock * Cost of common equity) + [Weight of debt * Pretax cost of debt(1 -…
Q: Walther enterprises has a capital structure target of 60 percent common equity, 15 percent preferred…
A: Weight of common equity (We) = 60% Weight of preferred stock (Wp) = 15% Weight of long term debt…
Q: Suppose that JB Cos. has a capital structure of 78 percent equity, 22 percent debt, and that its…
A: WACC refers to a firm's weighted average cost of capital. It is the rate that a firm pays to its…
Q: Corporation X needs $1,000,000 and can raise this through debt at an annual rate of 6 percent, or…
A: Given information: Amount needed is $1,000,000 Interest rate on debt is 6% Annual cost of preferred…
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A: Wacc is weighted average of cost of each financing security
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A: Beta is the measure of the systematic risk associated with the firm. Unlevered beta is calculated…
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A:
Q: Salalah Mineral water has found that its cost of common equity capital is 18 percent, and its cost…
A: re=18%rd=8%we=60%wd=40%tax= 40%
Q: Bulldogs Inc., which is funded by debt and ordinary equity, has a debt to equity ratio of 100%. The…
A: Answer) Calculation of Applicable Tax Rate Weighted Average Cost of Capital = [(Weightage of Equity…
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A: The WACC is the overall cost of capital from all the sources of finance. The WACC is the minimum…
Q: Suppose that TipsNToes, Inc.'s capital structure features 75 percent equity, 25 percent debt, and…
A: After tax cost of debt = Before tax cost * (1 - tax rate) = 10%*(1-.20) = .08 = 8% Cost of equity…
Q: Keziah Textiles, Inc. has a cost of equity of 10.8 percent. The company has an aftertax cost of debt…
A: COST OF EQUITY = 10.80% AFTER TAX COST OF DEBT = 5.10% DEBT TO EQUITY RATIO = 0.80
Q: Croft Corporation has a target capital structure of 70 percent common stock and 30 percent debt. Its…
A: Common stock ratio (E) = 70% Debt ratio (D) = 30% Cost of equity (Ke) = 16% Cost of debt (Kd) = 8%…
Q: Fusion Packaging is financed with 55% equity and 45% debt. The required rate of return on its debt…
A: Weight of equity (We) = 55% Weight of debt (Wd) = 45% Cost of debt (Rd) = 4.4% Cost of equity (Re) =…
Q: Suppose that JB Cos. has a capital structure of 75 percent equity, 25 percent debt, and that its…
A: WACC is weighted Average cost of Capital shows the average cost of Capital obtained from the all…
Q: Lannister Manufacturing has a target debt-equity ratio of 0.66. Its cost of equity is 16 percent,…
A: Weighted average cost of capital can be calculated as: = (Weight of equity * Cost of equity) +…
Q: Ron Inc., who has an applicable 30% corporate tax as stated on its BIR tax registration form, is…
A: The debt ratio is the ratio that indicates the percentage of assets that the company provided by the…
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A: The cost of capital is the cost that is incurred by a corporation on the acquisition of capital from…
Q: Croft Corporation has a target capital structure of 70 percent common stock and 30 percent debt. Its…
A: The provided information are: Common stock = 70% Debt = 30% Cost of equity = 18% Cost of debt = 6%…
Q: Company A is financed by 20% of debt and the rest of the company is financed by common equity. The…
A: Given: Debt (% of capital structure) 20% Before-tax cost of debt 5% Cost of equity 11%…
Q: Suppose that TipsNToes, Inc.'s capital structure features 75 percent common equity, 25 percent debt,…
A: Equity ratio = 75% Debt ratio = 25% Cost of equity = 12% Before tax cost of debt = 10% Tax rate =…
Q: Croft Corporation has a target capital structure of 85 percent common stock and 15 percent debt. Its…
A: WACC = Cost of debt * Weight of debt + Cost of equity * Weight of equity
Q: Suppose that TapDance, Inc.'s, capital structure features 65 percent equity, 35 percent debt, and…
A:
Q: Majan Mining has found that its cost of common equity capital is 15 percent and its cost of debt…
A: Given that, cost of common equity capital is 15 percent cost of debt capital is 12 percent common…
Q: If its current tax rate is 40%, Turnbull’s weighted average cost of capital (WACC) will be (1.23 /…
A:
Q: Analyze the cost of capital situations of the following company cases, and answer the specific…
A: 1. Higher the weighted average capital = (Cost new stock - cost of new retained earnings) *…
Q: •TDN Corporation has a target capital structure of 75% common stock, 5% preferred stock, and 20%…
A: Formulas:
Q: Suppose that TapDance, Inc.'s capital structure features 60 percent equity, 40 percent debt, and…
A: Equity ratio = 60% Debt ratio = 40% Cost of equity = 11% Before tax cost of debt = 6% Tax rate = 21%…
Q: Mullineaux Corporation has a target capital structure of 70 percent common stock and 30 percent…
A: WACC is the after tax cost that the company bears for raising capital from all sources i.e. equity,…
Q: Suppose that MNINK Industries’ capital structure features 63 percent equity, 8 percent preferred…
A: WACC refers to a firm's weighted average cost of capital. It is the rate that a firm pays to its…
Q: Suppose that TipsNToes, Inc.'s capital structure features 55 percent common equity, 45 percent debt…
A: Weight of common equity = 0.55 Weight of debt = 0.45 Cost of equity = 0.14 Before tax cost of debt =…
Q: Wilmore Company Limited is a levered entity with percentage of debt out of total capital being 40%.…
A: The cost of debt is the effective interest rate a company pays on its debt.
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…
Q: Butler, Inc., has a target debt-equity ratio of 1.60. Its WACC is 7.8 percent, and the tax rate is…
A: WACC = Post tax Cost of debt * Weight of debt + Cost of equity * Weight of equity
Q: Healthy Snacks, Inc. has a target capital structure of 55 percent common stock, 5 percent preferred…
A: Given that, Cost of equity (Ke) = 14.3% Cost of preferred stock (Kp) = 8.9% Pretax cost of debt (Kd)…
Q: WACC
A: Computation of WACC WACC is 10.106%. (Please refer the working note in step 2) Formula for WACC…
Q: Croft Corporation has a target capital structure of 70 percent common stock and 30 percent debt. Its…
A: WACC = [Cost of debt x (1 - tax rate) x debt %] + (Cost of equity x Equity %)
Q: Suppose that T-shirts, Incorporated's capital structure features 25 percent equity, 75 percent debt,…
A: Given, Equity = 25% Debt = 75% Before tax cost of debt = 8% Cost of equity = 12% Tax rate = 21%
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…
Q: What will be TapDance’s WACC?
A: The formula to compute WACC is shown below: = Weightage of debt × cost of debt × ( 1- tax rate) +…
Q: Suppose that MNINK Industries’ capital structure features 63 percent equity, 8 percent preferred…
A: WACC refers to weighted average cost of capital and represents a company's average cost of capital…
Q: Cullumber Co. has a capital structure, based on current market values, that consists of 40 percent…
A: Given information: Weights : Debt: 40% Preferred stock : 19% Common stock : 41% Cost : Debt : 9%…
Q: Suppose that TapDance, Inc.'s capital structure features 65 percent equity, 35 percent debt, and…
A: WACC = (Market weight of equity × Cost of equity) + (Market value of debt × post tax Cost of debt)
Q: Bulldogs Inc., which is funded by debt and ordinary equity, has a debt to equity ratio of 100%. The…
A: The cost of debt is tax-deductible and hence its effective cost is different.
Q: Pfd Company has debt with a yield to maturity of 6.3%, a cost of equity of 15.1%, and a cost of…
A: The weighted average cost of capital computes the weighted cost of sourcing funds from different…
Company C has a capital structure consisting of 60% equity and 40% debt. The before-tax cost of debt is 5%, while the
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- F. Pierce Products Inc. is considering changing its capital structure. F. Pierce currently has no debt and no preferred stock, but it would like to add some debt to take advantage of 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 Equity Ratio (D/S) 0.00 0.1111 0.2500 0.4286 0.6667 Market Equity-to- Value Ratio (ws) 1.0 0.90 6.0% 6.4 0.80 7.0 8.2 0.70 0.60 10.0 F. Pierce uses the CAPM to estimate its cost of common equity, rs, and at the time of the analaysis the risk-free rate is 6%, the market risk premium is 8%, and the company's tax rate is 25%. F. Pierce estimates that its beta now (which is "unlevered" because it currently has no debt) is 0.7. Based on this information, what is the firm's optimal capital structure, and what would be the weighted average cost of capital at the optimal capital structure? Do not round intermediate calculations. Round your answers to two…B.F. Pierce & Company is considering changing its capital structure. The company currently has no debt and no preferred stock, but it 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: 8.66% 9.21% 8.83% Market Debt-to- Value Ratio 9.07% (WD) 0.00 0.20 0.40 0.60 0.80 Market Equity-to- Value Ratio (WE) 1.00 0.80 0.60 0.40 0.20 Market Debt-to- Equity Ratio (D/E) 0.00 0.25 0.67 1.50 4.00 Before-Tax Cost of Debt (rD) 5.00% The company uses the CAPM to estimate its cost of common equity. Currently the risk-free rate is 4%, the market risk premium is 6%, and the company's tax rate is 25%. The company estimates that its beta now (which is unlevered because it currently has no debt) is 0.8. Based on this information, what is the firm's weighted average cost of capital at its optimal capital structure? 6.00% 7.00% 8.00% 9.00%Assume that a company borrows at a cost of 0.08. Its tax rate is 0.35. What is the minimum after-tax cost of capital for a certain cash flow if a. 100 percent debt is used? b. 100 percent common stock? (assume that the stockholders will accept 0.08)
- The user cost of capital: Consider the basic formula for the user cost ofcapital in the presence of a corporate income tax. Suppose the baseline casefeatures an interest rate of 2 percent, a rate of depreciation of 6 percent, aprice of capital that rises at 1 percent per year, and a 0 percent corporate taxrate. Starting from this baseline case, what is the user cost of capital after thefollowing changes?(a) No changes—the baseline case.(b) Te corporate tax rate rises to 35 percent.(c) Te interest rate doubles to 4 percent.(d) Both (b) and (c).1. Jorge Ricard, a fi nancial analyst, is estimating the costs of capital for the Zeale Corporation. In the process of this estimation, Ricard has estimated the before-tax costs of capital for Zeale’s debt and equity as 4 percent and 6 percent, respectively. What are the after-tax costs of debt and equity if Zeale’s marginal tax rate is 1. 20 percent? 2. 45 percent? 2. ABC, Inc. has one class of preferred stock outstanding, a $3.75 cumulative preferred stock, for which there are 546,024 shares outstanding.15 If the price of this stock is $72, what is the estimate of ABC’s cost of preferred equity? 3. Valence Industries wants to know its cost of equity. Its chief financial officer (CFO)believes the risk-free rate is 5 percent, equity risk premium is 7 percent, and Valence’s equity beta is 1.5. What is Valence’s cost of equity using the CAPM approach? 4. Suppose a company has a current dividend of $ 2 per share, a current price of $ 40 per share, and an expected growth rate of 5…Suppose that MNINK industries' capital structure features 63 percent equity, 7 percent preferred stock, and 30 percent debt. If the before-tax component costs of equity, preferred stock, and debt are 11.60 percent, 9.5 percent, and 9 percent, respectively, what is MNINK's WACC if the firm faces an average tax rate of 21 percent and can make full use of the interest tax shield?
- Your company has a pre-tax cost of debt of 6%. You anticipate the corporate tax rate will go from 21% to 28% in the near future. What impact will the tax change have on your debt cost of capital as an input to your overall cost of capital?Which of the following statements is CORRECT? Group of answer choices Since debt capital can cause a company to go bankrupt but equity capital cannot, debt is riskier than equity, and thus the after-tax cost of debt is always greater than the cost of equity. The tax-adjusted cost of debt is always greater than the interest rate on debt, provided the company does in fact pay taxes. If a company assigns the same cost of capital to all of its projects regardless of each project’s risk, then the company is likely to reject some safe projects that it actually should accept and to accept some risky projects that it should reject. Because no flotation costs are required to obtain capital as retained earnings, the cost of retained earnings is generally lower than the after-tax cost of debt. Higher flotation costs tend to reduce the cost of equity capital.Pierce Products Inc. is considering changing its capital structure. F. Pierce currently has no debt and no preferred stock, but it 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-ValueRatio(wd) Market Equity-to-ValueRatio(ws) Market Debt-to-EquityRatio(D/S) Before-Tax Cost of Debt (rd) 0.0 1.0 0.00 6.0% 0.2 0.8 0.25 7.0 0.4 0.6 0.67* 8.0 0.6 0.4 1.50 9.0 0.8 0.2 4.00 10.0 * Use the exact value of 2/3 in your calculations. F. Pierce uses the CAPM to estimate its cost of common equity, rs and at the time of the analaysis the risk-free rate is 6%, the market risk premium is 5%, and the company's tax rate is 40%. F. Pierce estimates that its beta now (which is "unlevered" because it currently has no debt) is 1.25. Based on this information, what is the firm's optimal capital…
- Suppose that B2B, Incorporated has a capital structure of 37 percent equity, 17 percent preferred stock, and 46 percent debt. Assume the before-tax component costs of equity, preferred stock, and debt are 15.0 percent, 12.0 percent, and 10.0 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? Note: Round your answer to 2 decimal places. WACC %Suppose that MNINK Industries' capital structure features 63 percent equity, 8 percent preferred stock, and 29 percent debt. Assume the before-tax component costs of equity, preferred stock, and debt are 11.40 percent, 9.30 percent, and 8.00 percent, respectively. What is MNINK'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.) Answer is complete but not entirely correct. WACC 9.50F. Pierce Products Inc. is considering changing its capital structure. F. Pierce currentlyhas no debt and no preferred stock, but it would like to add some debt to takeadvantage of low interest rates and the tax shield. Its investment banker has indicatedthat the pre-tax cost of debt under various possible capital structures would be asfollows:Market Debt-to-Value Ratio (wd) 0.0 0.2 0.4 0.6 0.8 Market Equity-to-Value Ratio (ws) 1.0 0.8 0.6 0.4 0.2 Market Debt-to-Equity Ratio (D/S) 0.00 0.25 0.67 1.50 4.00 Before-Tax Costof Debt (rd) 6.0% 7.0 8.0 9.0 10.0 F. Pierce uses the CAPM to estimate its cost of common equity, rs and at the time of theanalysis the risk-free rate is 5%, the market risk premium is 6%, and the company’s taxrate is 40%. F. Pierce estimates that its beta now (which is “unlevered” because itcurrently has no debt) is 0.8. Based on this information, what is the firm’s optimalcapital structure, and what would be the weighted average cost of capital at the optimalcapital…