Question

Your firm has AUD 100 million of outstanding equity. It has also issued a 10-year bond...

Your firm has AUD 100 million of outstanding equity. It has also issued a 10-year bond in US markets with total face value equal to USD 100 million, which pays a 4% annual coupon and was recently quoted at a price of 100. Your marginal tax rate is 25%.

You observe the market information below.

AUD risk-free rate 2%

Your firm's beta 1.25

Market risk premium 4%

AUD expected inflation 1%

USD expected inflation 3%

Exchange rate 1.10 USD per AUD

Which of these answers is closest to your answer. Find the WACC.

A. 5%

B. 5.5%

C. 6%

D. 6.5%

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
An all equity firm is expected to generate perpetual EBIT of $100 million per year forever....
An all equity firm is expected to generate perpetual EBIT of $100 million per year forever. The corporate tax rate is 35%. The firm has an unlevered (asset or EV) Beta of 0.8. The risk-free rate is 4% and the market risk premium is 6%. The number of outstanding shares is 10 million. The firm decides to replace part of the equity financing with perpetual debt. The firm will issue $100 million of permanent debt at the riskless interest rate...
SIROM Scientific Solutions has $10 million of outstanding equity and $10 million of bank debt. The...
SIROM Scientific Solutions has $10 million of outstanding equity and $10 million of bank debt. The bank debt costs 7% per year. The estimated equity beta is 2. If the market risk premium is 9​% and the​ risk-free rate is 3​%, compute the weighted average cost of capital if the​ firm's tax rate is 35​%.
A company has $91 million in outstanding bonds, and 10 million shares of stock currently trading...
A company has $91 million in outstanding bonds, and 10 million shares of stock currently trading at $32 per share.The bonds pay an annual coupon rate of 5% and is trading at par. The company's beta is 0.7, its tax rate is 40%, the risk-free rate is 4%, and the market risk premium is 6%. What is this firm's WACC? Enter your answer as a percentage, without the percentage sign ('%'), rounded to 1 decimal. For example, if your answer...
A company has $96 million in outstanding bonds, and 10 million shares of stock currently trading...
A company has $96 million in outstanding bonds, and 10 million shares of stock currently trading at $34 per share.The bonds pay an annual coupon rate of 8% and is trading at par. The company's beta is 1, its tax rate is 40%, the risk-free rate is 3%, and the market risk premium is 4%. What is this firm's WACC? Enter your answer as a percentage, without the percentage sign ('%'), rounded to 1 decimal. For example, if your answer...
An all equity firm is expected to generate perpetual EBIT of $100 million per year forever....
An all equity firm is expected to generate perpetual EBIT of $100 million per year forever. The corporate tax rate is 35%. The firm has an unlevered (asset or EV) Beta of 0.8. The risk-free rate is 4% and the market risk premium is 6%. The number of outstanding shares is 10 million. The firm decides to replace part of the equity financing with perpetual debt. 2) The firm will issue $100 million of permanent debt at the riskless interest...
Havertown Audio has an outstanding bond issue with an total par value of $100 million. The...
Havertown Audio has an outstanding bond issue with an total par value of $100 million. The bonds are selling at a quoted price of 110% of par value and have a yield to maturity of 5.65%. The company also has 8 million shares of common stock outstanding. The stock has a beta of 1.3 and sells for $30 per share. The yield on 10 year U.S. Treasury bonds is 3% and the market risk premium is 7%. Havertown Audio has...
Suppose that a business line of a bank has a loan book of USD 100 million....
Suppose that a business line of a bank has a loan book of USD 100 million. The average interest rate is 10%. The book is funded at a cost of USD 5.5 million. The economic capital against these loans is USD 7.5 million (7.5% of the loan value) and is invested in low risk securities earning 5.5% per annum. Operating costs are USD 1.5 million per annum and the expected loss on this portfolio is assumed to be 1% per...
An all - equity firm with 200,000 shares outstanding. Antwerther Inc, has $2,000,000 of EBIT, which...
An all - equity firm with 200,000 shares outstanding. Antwerther Inc, has $2,000,000 of EBIT, which is expected to remain constant in the future.The company pays out all its earnings, so earnings pet share(EPS) equal dividends per share(DPS).Its tax rate is 40%. The company is considering issuing $5,000,000 of 10.0% bonds and using the proceeds to repurchase stock. The risk- free rate is 6.5%, the market risk premium is 5.0% and beta is currently 0.90, but the CFO belives beta...
3G is an all-equity firm with 200,000 shares outstanding, has $2,000,000 of EBIT, which is expected...
3G is an all-equity firm with 200,000 shares outstanding, has $2,000,000 of EBIT, which is expected to remain constant in the future. The company pays out all of its earnings, so earnings per share (EPS) equal dividends per shares (DPS). Its tax rate is 40%. The company is considering issuing $5,000,000 of 10.0% bonds and using the proceeds to repurchase stock. The risk-free rate is 6.5%, the market risk premium is 5.0%, and the beta is currently 0.90, but the...
Ashman Motors is currently an​ all-equity firm. It has two million shares​ outstanding, selling for ​$43...
Ashman Motors is currently an​ all-equity firm. It has two million shares​ outstanding, selling for ​$43 per share. The company has a beta of 1.5​, with the current​ risk-free rate at 4.7​% and the market premium at 7.7​%. The tax rate is 15​% for the company. Ashman has decided to sell ​$43 million of bonds and retire half its stock. The bonds will have a yield to maturity of 10.8​%. The beta of the company will rise to 1.9 with...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT