Glencore is the largest mining corporation in the world with annual revenues of $220 billion dollars, their headquarters are located in the UK and Switzerland. In financing new mining locations, the corporation uses both debt and equity financing to provide a favorable balance
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Glencore is the largest mining corporation in the world with annual revenues of $220 billion dollars, their headquarters are located in the UK and Switzerland. In financing new mining locations, the corporation uses both debt and equity financing to provide a favorable balance between risk and cost of capital. Its financial partners will provide unlimited financing at an annual interest rate of 10% as long as its target capital structure is 25% debt, and 75% common equity. Last year the company paid a dividend of $2.25 per share and the constant growth rate is expected at 4.5%. The current price on the stock market is $14.7 per share. Their corporate tax rate is 32%. They are looking to invest in mining locations in two areas, one in South Africa, and the other in Australia. The rate of return for the two locations is expected to be 12% and 16% respectively. Assume that all of its potential projects are equally risky and as risky as the firm’s other assets.
Calculate their Weighted Average Cost of Capital?
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- Glencore is the largest mining corporation in the world with annual revenues of $220 billion dollars, their headquarters are located in the UK and Switzerland. In financing new mining locations, the corporation uses both debt and equity financing to provide a favorable balance between risk and cost of capital. Its financial partners will provide unlimited financing at an annual interest rate of 10% as long as its target capital structure is 25% debt, and 75% common equity. Last year the company paid a dividend of $2.25 per share and the constant growth rate is expected at 4.5%. The current price on the stock market is $14.7 per share. Their corporate tax rate is 32%. They are looking to invest in mining locations in two areas, one in South Africa, and the other in Australia. The rate of return for the two locations is expected to be 12% and 16% respectively. Assume that all of its potential projects are equally risky and as risky as the firm’s other assets. Calculate Glencore’s cost…Glencore is the largest mining corporation in the world with annual revenues of $220 billion dollars, their headquarters are located in the UK and Switzerland. In financing new mining locations, the corporation uses both debt and equity financing to provide a favorable balance between risk and cost of capital. Its financial partners will provide unlimited financing at an annual interest rate of 10% as long as its target capital structure is 25% debt, and 75% common equity. Last year the company paid a dividend of $2.25 per share and the constant growth rate is expected at 4.5%. The current price on the stock market is $14.7 per share. Their corporate tax rate is 32%. They are looking to invest in mining locations in two areas, one in South Africa, and the other in Australia. The rate of return for the two locations is expected to be 12% and 16% respectively. Assume that all of its potential projects are equally risky and as risky as the firm’s other assets. Calculate their Weighted…Glencore is the largest mining corporation in the world with annual revenues of $220 billion dollars, their headquarters are located in the UK and Switzerland. In financing new mining locations, the corporation uses both debt and equity financing to provide a favorable balance between risk and cost of capital. Its financial partners will provide unlimited financing at an annual interest rate of 10% as long as its target capital structure is 25% debt, and 75% common equity. Last year the company paid a dividend of $2.25 per share and the constant growth rate is expected at 4.5%. The current price on the stock market is $14.7 per share. Their corporate tax rate is 32%. They are looking to invest in mining locations in two areas, one in South Africa, and the other in Australia. The rate of return for the two locations is expected to be 12% and 16% respectively. Assume that all of its potential projects are equally risky and as risky as the firm’s other assets. Calculate Glencore’s cost of…
- Glencore is the largest mining corporation in the world with annual revenues of $220 billion dollars, their headquarters are located in the UK and Switzerland. In financing new mining locations, the corporation uses both debt and equity financing to provide a favorable balance between risk and cost of capital. Its financial partners will provide unlimited financing at an annual interest rate of 10% as long as its target capital structure is 25% debt, and 75% common equity. Last year the company paid a dividend of $2.25 per share and the constant growth rate is expected at 4.5%. The current price on the stock market is $14.7 per share. Their corporate tax rate is 32%. They are looking to invest in mining locations in two areas, one in South Africa, and the other in Australia. The rate of return for the two locations is expected to be 12% and 16% respectively. Assume that all of its potential projects are equally risky and as risky as the firm’s other assets. 1.Calculate Glencore’s cost…Tortuga, Inc. is looking to raise $4 million for new equipment to enhance the efficiency of its operations. The firm currently is capitalized with 250,000 shares of equity at a market price of $35 per share and also has $2,000,000 of debt with an interest rate of 9%. The company believes that with the new capital they could achieve an EBIT of $1,500,000. Assume new equity could be issued at current market price and that new debt would still carry a 9% coupon. The company has a 25% marginal tax rate. Should Tortuga issue Equity or Debt? Debt, because EPS will be $2.88 Debt, because EPS will be $1.95 O Equity, because EPS will be $2.72 Equity, because EPS will be $2.13The company wants to take a $500.0 mil loan to rebuild its position and expand its line of business to heavy equipment. Should the company take the loan or seek other forms of investment? notes -Business overseas- 40% of company revenues -Domestic market- 60% of company revenues -Increase in competition -The company has over the years relied mainly on issuing long-term bonds to finance its capital projects. -As of today, the firm has 50.0 million shares of common stock outstanding. Ratio Analysis 2021 Est. 2020 2019 Industry Average Liquidity Ratios Current Ratio (times) 2.34 3.22 3.68 4.2 Quick Ratio (times) 0.91 1.24 1.79 2.1 Asset Management Ratios Average sales/day 10.96 8.22 7.81 9 Inventory Turnover Ratio (times) 4.43 3.74 5.06 9 Days Sales Outstanding (days) 38.32 45.62 40.34 36 Fixed Assets Turnover…
- Morgan Industries is an all-equity firm with 50 million shares outstanding. Iota has $200 million in cash and expects future free cash flows of $75 million per year. Management plans to use the cash to expand the firm's operations, which in turn will increase future free cash flows by 12%. Morgan's cost of capital is 10% and assume that capital markets are perfect. • What is the value of Morgan Industries if they use the $200 million to expand?• What is the price per share of Morgan Industries if they use the $200 million to expand?A company is planning the financing of a major expansion. It will use common stock to fund this expansion. The company currently has 300,000 shares outstanding selling at an average of $130 per share. It would sell an additional 50,000 shares to bring in an estimated $5 million. The new project is expected to raise EBIT by 18% when implemented. The company’s capital structure contains long-term debt of $10 million which pays interest of 11%. Current Income Statement Net Sales 66,000,000 COGS 42,000,000 Gross Profits 24,000,000 S and A Expenses 9,300,000 Operating Profits 14,700,000 Interest on Debt 1,100,000 EBT 13,600,000 Taxes at 34% 4,600,000 EAT 9,000,000 Develop an analysis of EPS and show the effect of any dilution of earnings. Develop the same analysis for an alternative issue of $5 million of 10% preferred stock, and an alternative issue of $5 million of 9% debt. Develop specific comparative costs of all…A start-up company Amazonian.com is considering expanding into new product markets. The expansion will require an initial investment of $160 million and is expected to generate perpetual EBIT of $40 million per year. After the initial investment, future capital expenditures are expected to equal depreciation, and no further additions to net working capital is anticipated. Amazonian.com’s existing capital structure is composed of equity with a market value of $500 million and debt with a market value of $300 million, and has 10 million shares outstanding. The unlevered cost of capital for Amazonian.com is 10%, and Amazonian.com’s debt is risk free with an interest of 4%. The expansion into the new product market will have the same business risk as Amazonian.com’s existing assets. The corporate tax rate is 35%, there are no personal taxes or costs of financial distress. a) Amazonian.com initially proposes to fund the expansion by issuing equity. If investors were not expecting this…
- On January 1, 2009, you examine two unlevered firms that operate in the same industry, have identical assets worth $80 million that yield a net profit of 12.5 percent per year, and have 10 million shares outstanding. During 2009, and all subsequent years, each firm has the opportunity to invest an amount equal to its net income in (slightly) positive-NPV investment projects. The Beta Company wants to finance its capital spending through retained earnings. The Gamma Company wants to pay out 100 percent of its annual earnings as cash dividends and to finance its investments with a new share offering each year. There are no taxes or transactions costs to issuing securities. Calculate the overall and per-share market value of the Beta Company at the end of 2009 and each of the two following years (2010 and 2011). What return on investment will this firm’s shareholders earn? b. Describe the specific steps that the Gamma Company must take today (1/1/2009), and at the end of each of the next…Longhorn, Incorporated, has produced rodeo supplies for over 20 years. The company currently has a debt-equity ratio of 55 percent and the tax rate is 23 percent. The required return on the firm’s levered equity is 14 percent. The company is planning to expand its production capacity. The equipment to be purchased is expected to generate the following unlevered cash flows: Year Cash Flow 0 −$ 18,400,000 1 5,740,000 2 9,540,000 3 8,840,000 The company has arranged a debt issue of $9.42 million to partially finance the expansion. Under the loan, the company would pay interest of 9 percent at the end of each year on the outstanding balance at the beginning of the year. The company also would make year-end principal payments of $3,140,000 per year, completely retiring the issue by the end of the third year. What is the APV of the project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89)Bridgewater Associates invests $88 billion in each of Lucid Group, Inc. (LCID) and Tesla, Inc. (TSLA). Bridgewater has a “2 and 15” fee structure and its management fees and incentive fees are calculated independently at the end of each year. After one year, the investment in LCID is valued at $110 billion and the investment in TSLA is valued at $120 billion. The annual return to an investor in Bridgewater Associates is closest to A. 30.88%. B. 27.65%. C. 23.47%. D. 18.75%.