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- You plan to purchase debenture bonds from one of two companies in the same industry that are similar in size and performance. The first company has $800,000 in total liabilities, and $1,200,000 in equity. the second company has $600,000 in total liabilities, and $400,000 in equity. 2. Which company's debenture bonds are less risky based on the debt-to-equity ratio? Explain. Show your calculations to support your decision.HeadAche Inc. depends on two sources of financing: bond issues and common stock. In the following table, you can see the market value of these two sources as well as required rates of return: Market Value Required Return Bonds $480,000,000 8.00% Common stock $720,000,000 12.00% Total $1,200,000,000 Other financial information: 1) Using FCFF, what is the present value of the firm, and the present value of the equity?2) Using FCFE, what is the present value of the equity?please answer with steps , explanation , computation and formulation so that I can understand the sloution easliy thanks PT Nusantara is financed with debt, preferred equity, and common equity with market values of $20 million, $10 million, and $30 million, respectively. The betas for the debt, preferred stock, and common stock are 0.2, 0.5, and 1.1, respectively. If the risk-free rate is 3.95 percent, the market risk premium is 6.01 percent, and the company’s average and marginal tax rates are both 30%, what is the company’s weighted average cost of capital?
- WorldTrans currently finances with 20.0% debt (i.e., wd = 20%), but its new CFO is considering changing the capital structure so wd = 62.5% by issuing additional bonds and using the proceeds to repurchase and retire common shares so the percentage of common equity in the capital structure (wc) = 1 – wd. Given the data shown below, by how much would this recapitalization change the firm's cost of equity? Do not round your intermediate calculations. (Hint: You must unlever the current beta and then use the unlevered beta to solve the problem.) Risk-free rate, rRF 5.00% Tax rate, T 25% Market risk prem, RPM 6.00% Current wd 20% Current beta, bL1 1.60 Target wd 62.5% Group of answer choices 10.93% 9.18% 11.39% 9.64% 11.48%concatti corporation hired your consulting firm to help them estimate the cost of equity. the yeild on the firms bonds is 10.50% and your firms economist believe that the cost of equity can be estimated using a risk premium of 4.85% over a firms own cost of debt. what is an estimate of the firms cost of equity from retained earnings?Aneka Inc. hire your consulting firm to help them estimate the cost of equity. Yield of Aneka Inc. bonds is 7.25%, and the economist company in your company believes that the cost equity can be estimated using a risk premium of 3.50% over the company's cost of debt. What is Lange's estimated cost of equity from retained earnings? a. 10.75% b. 11.18% c. 11.63% d. 12.09% e. 12.58%
- I went to finra-markets.morningstar.com, enter SNA as the company, and found the yield to maturity for each of SNA’s bonds. The weighted average cost of debt for SNA using the total book debt value of $1,450 million is 2.48% and using the total market value of $1,558.68 million is 2.49%. Moreover, SNA has a 21 percent tax rate. Now that we have all the necessary information, we can calculate the weighted average cost of capital for SNA. I suggest we do that using (a) the book value weights and (b) market value weights. Which number is more relevant?The following data pertains to Xena Corp. Xena Corp. Total Assets $21,249 Interest-Bearing Debt (market value) $11,070 Average borrowing rate for debt 10.2% Common Equity: Book Value $5,535 Market Value $23,247 Marginal Income Tax Rate 19% Market Beta 1.64 A. Using the information from the table, and assuming that the risk-free rate is 4.5% and the market risk premium is 6.2%, calculate Xena's cost of equity capital, using the capital asset pricing model: B. Using the information from the table, determine the weight on debt capital that should be used to calculate Xena's weighted-average cost of capital.The DestitutusVentis Company (DV Co) has the following items on its balance sheet (question mark means that the quantity is unknown): Type of asset/liability Market value Risk (beta) Cash holdings £20m 0 Fixed investments £180m ? Short term debt £10m 0 Long term debt £70m 0.05 Equity £120m 1.1 The risk-free rate is 3%, and the average return on the market index is 7%. The number of shares outstanding for DV Co is 100m. The corporate and investor tax rates are zero. Modigliani-Miller irrelevance of dividend policy and capital structure holds. What is the weighted average cost of capital (WACC) for DV Co? The company plans to pay a dividend per share of £0.10, which is funded by increasing the company’s long-term debt correspondingly. The new debt has the same beta as the old long-term debt. What is the value per share of the DV Co’s stock on ex-dividend day if the dividend payment goes ahead? What is the beta of the equity on…
- Virtual Excursions, Pty is financed 80% by common stock and 20% by bonds. The expected return on the common stock is 12%, and the rate of interest on the bond is 6%. The bonds are default-free and that there are no taxes. Assume that the company issues more debt and uses the proceeds to retire equity. The new financing mix is 60% equity and 40% debt. If the debt is default-free. a) What will be the expected rate of return on equity? b) What will be the expected return on the package of common stocks and bonds?Garwryk, inc., which is finance with debt and equity, presently has a debt ratio of 78 percent. What is the firm’s equity multiplier? How is the equity multiplier related to the firm’s use of debt financing (i.e., if the firm increased its use of debt financing would this increase or decrease its equity multiplier)? Explain What is the firm’s multiplier? The equity multiplier is given by: Equity multiplier =1 1-debt ratio The equity multiplier is Round to two decimal placesANB ltd has common equity of $35.5mn and $31.9mn of long-term debt and $10.3mn of preferredequity on its books. Required return on these funds are 12%, 8%, and 10%, respectively. Market valuesof the common equity and long-term debt are $46.6mn and $35mn, respectively. Market value ofpreferred equity is the same as its book value. Estimate WACC for the company given that its effectivetax rate is 30%.