Question

A NYC based company has total assets of $45 million & debt of $16 million. The firm’s before-tax cost of debt is 9.7% & its cost of equity is 13.66%. The company has a corporate tax rate of 39%. What is this firm’s weighted average cost of capital (WACC)?

Answer #1

Your company has the debt to equity breakdown below. The cost of
debt is 4% (based on the interest on debt of 5% and the tax rate of
20%) and the cost of the equity is 8%.
COST OF CAPITAL
PROPORTION OF TOTAL ASSETS
Equity
8%
.50
Debt
4% based on interest rate(1-t)
.50
A) What is your company’s Weighted Average Cost of Capital
(WACC)?
B) Your company’s Recruiting Division has $920,000 in total assets,
which is the total...

A us based company has a market value of its debt equal to $40
million and has 3 million outstanding shares of stock , each
selling for $20 per share. The company pays a 5% rate of interest
on its debt and has a beta of 1.41. The corporate tax rate is 34%.
The risk premium on the market is 9.5%. the current treasury bill
rate is 1%. What is the firm’s weighted average cost of
capital?

The corporate tax rate is zero. The company has $1,020,000 of
assets and $799,000 of debt. The rate of return on the debt is
15.80%. The rate of return on the equity is 22.10%. The company has
no preferred shares. What is the company's weighted average cost of
capital (wacc)?

LIS Company has $60 million in long-term debt, $85 million in
shareholder’s equity [both figures are market value basis]. The
cost of equity is 13%, cost of long-term debt is 8.5% and the tax
rate is 18%. (a) What is the weighted average cost of capital
[WACC] for LIS? (b)LIS Company has a pretax income of $13.5
million. What is the value of the company based on calculation
(a)

LIS Company has $50 million in long-term debt, $75 million in
shareholder’s equity [both figures are market value basis]. The
cost of equity is 14%, cost of long-term debt is 12% and the tax
rate is 25%. What is the weighted average cost of capital [WACC]
for LIS?
LIS Company has a pretax income of $12.5 million. What
is the value of the company based on correct calculation of
#1?

1. A firm has
a $400 million market capitalization and $250 million in debt. It
also has $100 million in cash and short-term investments on the
balance sheet. The yield to maturity on its debt is 4%, the
corporate tax rate is 35%, and the required return on its equity is
14%. What is this firm’s WACC?
2. A firm’s WACC is 19%, its required return on equity
is 23%, and its after-tax cost of debt (i.e., effective cost after...

Suppose the debt ratio (Debt to total assets) is 30%, the
current cost of debt is 8%, the current cost of equity is 15%, and
the tax rate is 21%. A decrease in the debt ratio to 25% would
decrease the weighted average cost of capital (WACC).
a. True
b. False

A
company is financed with a combination of 55% equity and 45% debt.
The company has a beta of 1.75. The risk free rate is 4% and the
market rate of return is 16%. The debt is currently being traded in
the market is 8.5%. The company tax free rate is 35%. With all
these data, answer the following questions:
1. What is the company’s afteer tax cost of debt
2.what is the company’s cost of equity
3. What is...

A company currently has the debt-to-equity ratio of 1/3. Its
cost of debt is 4% before tax and its cost of equity is 12%. Assume
that the company is considering raising the debt-to-equity ratio to
1/2. The tax rate is 20%. What is its new cost of equity under the
new debt-to-equity ratio? What is its new weighted average cost of
capital (WACC) under the new debt-to-equity ratio.

A company currently has the debt-to-equity ratio of 1/3. Its
cost of debt is 6% before tax and its cost of equity is 12%. Assume
that the company is considering raising the debt-to-equity ratio to
1/2. The tax rate is 20%. What is its new cost of equity under the
new debt-to-equity ratio? What is its new weighted average cost of
capital (WACC) under the new debt-to-equity ratio.

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