Question

Ratzina corporation is operating at a 75% debt level. The company has a target capital structure...

Ratzina corporation is operating at a 75% debt level. The company has a target capital structure of 60% debt and 40%equity. The market value of the equity is $ 50 million and that of debt is $ 60 million. Currently the book and market value of the debt is equal. The cost of equity of the company is 16% and the cost of debt is 10%. Ignore taxation and assume that the company is a zero growth firm which fully pays out its earnings as dividends.

  1. What is the current level of the company’s earnings?
  1. Calculate WACC at the present level capital structure.

  1. If the company redeem a portion of its debt to meet the target capital structure, and as a consequence cost of equity goes down to 12, what would be the new value of the company?

Homework Answers

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The Longenes Company uses a target capital structure when calculating the cost of capital. The target...
The Longenes Company uses a target capital structure when calculating the cost of capital. The target structure and current component costs based on market conditions follow. Component Component Mix Cost* Debt 25% 8% Preferred Stock 10 12 Common Equity 65 20 The costs of debt and preferred stock are already adjusted for taxes and/or flotation costs. The cost of equity is unadjusted. The firm expects to earn $20 million next year and plans to invest $18 million in new capital...
Palencia Paints Corporation has a target capital structure of 25% debt and 75% common equity, with...
Palencia Paints Corporation has a target capital structure of 25% debt and 75% common equity, with no preferred stock. Its before-tax cost of debt is 10%, and its marginal tax rate is 40%. The current stock price is P0 = $35.00. The last dividend was D0 = $3.00, and it is expected to grow at a 5% constant rate. What is its cost of common equity and its WACC? Do not round intermediate calculations. Round your answers to two decimal...
New and Improved (NAI) has a target capital structure of 50% equity and 50% debt to...
New and Improved (NAI) has a target capital structure of 50% equity and 50% debt to fund its $5 billion in capital. Furthermore, NAI has a WACC of 12.0 percent. Assume NAI’s before-tax cost of debt is 8% , its’ tax rate is 30 percent and its’ retained earnings are adequate to fund the common equity portion of the capital budget. If the expected dividend next year is $4 and the current stock price is $40, what is the company's...
7. David Ortiz Motors has a target capital structure of 20% debt and 80% equity. The...
7. David Ortiz Motors has a target capital structure of 20% debt and 80% equity. The yield to maturity on the company’s outstanding bonds is 5.7%, and the company’s tax rate is 23%. Ortiz’s CFO has calculated the company’s WACC as 10.45%. What is the company’s cost of equity capital? 8. On January 1, the total market value of the Tysseland Company was $60 million. During the year, the company plans to raise and invest $30 million in new projects....
Palencia Paints Corporation has a target capital structure of 40% debt and 60% common equity, with...
Palencia Paints Corporation has a target capital structure of 40% debt and 60% common equity, with no preferred stock. Its before-tax cost of debt is 13%, and its marginal tax rate is 25%. The current stock price is P0 = $27.00. The last dividend was D0 = $2.25, and it is expected to grow at a 5% constant rate. What is its cost of common equity and its WACC? Do not round intermediate calculations. Round your answers to two decimal...
Allison Engines Corporation has established a target capital structure of 40 percent debt and 60 percent...
Allison Engines Corporation has established a target capital structure of 40 percent debt and 60 percent common equity.  The current market price of the firm’s stock is P0 = $59.2; its last dividend was D0 = $4.7, and its expected dividend growth rate is 5.3 percent.  What will Allison’s marginal cost of retained earnings, rs, be?
Porta Potty Corporation has a target capital structure of 60% debt and 40% common equity, with...
Porta Potty Corporation has a target capital structure of 60% debt and 40% common equity, with no preferred stock. Its before-tax cost of debt is 12%, and its marginal tax rate is 40%. The current stock price is P = $22.50. The last dividend was D0 = $2.00, and it is expected to grow at a 7% constant rate. What is its WACC?
Kahn Inc. has a target capital structure of 45% common equity and 55% debt to fund...
Kahn Inc. has a target capital structure of 45% common equity and 55% debt to fund its $12 billion in operating assets. Furthermore, Kahn Inc. has a WACC of 14%, a before-tax cost of debt of 12%, and a tax rate of 25%. The company's retained earnings are adequate to provide the common equity portion of its capital budget. Its expected dividend next year (D1) is $3, and the current stock price is $26. a. What is the company's expected...
XYZ Company’s target capital structure is 40% debt and 60% common equity. The XYZ doesn’t carry...
XYZ Company’s target capital structure is 40% debt and 60% common equity. The XYZ doesn’t carry any preferred stocks. Theafter-tax cost of debt is 6.00% and the cost of retained earnings is 10.25%. The cost of ne issuing stocks is 12%. XYZ currently has retained earning of 50,000 and needs an additional capital of $100,000. To maintain the same capital structure, What is its WACC?
please answer everything St. Barnabus Hospital has a target capital structure of 25% debt and 75%...
please answer everything St. Barnabus Hospital has a target capital structure of 25% debt and 75% equity its cost of equity estimate is 11% and its cost of tax-exempt debt estimate is 6.5% what is the hospital's corporate cost of capital Show me all of your work for full credit not just the answers. Elegant Nursing Home a nonprofit Corporation is estimating its corporate cost of capital. It stacked test depth currently requires an interest rate of four point 2%...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT