Question
Cost of Capital - Aurora's Princess Jewelry 1. What is the after-tax cost of equity funding?...
Cost of Capital - Aurora's Princess Jewelry
1. What is the after-tax cost of equity funding?
2. What is the after-tax cost of long-term debt?
3. What is the book value weights?
4. What is the marginal or market value weights?
5. What is the after-tax WACC at book value?
6. What is the after-tax WACC at market value?
Equity Information
50 million shares
Issued with $40 Par value
Sold at $40 per share, no excess
Market Price: $80 per share
D0 = $5.15
Growth Rate = 5.0%
Flotation Cost = 9.0%
Retained Earnings = $1 billion
Debt Information
$1 billion in outstanding debt
$1,000 face value per bond
Current quote = 110
Coupon rate = 9%, semiannual coupons
15 years to maturity
Flotation Cost = 2%
Tax rate = 21%
Homework Answers
Answer #1
Not the answer you're looking for?
Similar Questions
Weighted Average Cost of Capital (WACC) 1 In its 2017 10-k Black Diamond Equipment reported the...
Weighted Average Cost of
Capital (WACC)
1
In its 2017 10-k
Black Diamond Equipment reported the following information about
its capital structure. The firm had long term public debt
outstanding of 500 million dollars and short term debt of 31.5
million dollars. It's average cost of debt was 8.25%. The firm had
10 million public shares outstanding and each share was currently
trading for $84.75. It's cost of equity was 15.6%. The firms
current marginal tax rate was 35%. What...
Cost of Common Equity and WACC Palencia Paints Corporation has a target capital structure of 25%...
Cost of Common Equity and WACC
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 13% and its marginal tax rate is 40%.
The current stock price is P0 = $21.50. The last dividend was D0 =
$2.75, and it is expected to grow at a 5% constant rate. What is
its cost of common equity and its WACC? Round your answers to two...
Salma Limited finances its operations 40% debt and 60% equity. The company cost of debt is...
Salma Limited finances its operations 40% debt and 60% equity.
The company cost of debt is 10%.
Stocks of the company currently trade at $55 and dividends of $5
per share was paid. The share is price
is expected to grow at a constant rate of 10% a year.
N.B.
Flotation cost for equity is 5% of the share price;
Tax rate is 30%.
Compute the following:
a) Cost of ordinary share capital;
b) After-tax cost of debt; and...
Hiland's optimal or target capital structure has the following weights: Debt 35%, Preferred Stock 15%, and...
Hiland's optimal or target capital structure has the following
weights: Debt 35%, Preferred Stock 15%, and Common Stock 50%. The
before tax cost of debt (or yield to maturity) is 7%. The firm's
marginal tax rate is 40%. The firm has retained earnings as its
primary source of common equity funding and has not incurred
flotation costs. Its preferred stock if currently selling for $40
and pays a perpetual dividend of $4.00 per share. The firm is
expected to grow...
50 million shares $80 per share Beta = 1.11 Market risk premium = 7% Risk-free rate...
50 million shares
$80 per share
Beta = 1.11
Market risk premium = 7%
Risk-free rate = 2%
Debt Information
$1 billion in outstanding debt (face value)
Current quote = 108
Coupon rate = 9%, semiannual coupons
15 years to maturity
Tax rate =35%
What is the cost of equity? [K]
What is the before-tax cost of debt? [L]
What is the WACC?[M]
Weights: Cost of Capital Market Value Weights After tax cost of bank loan 1.29% $500 3.33%...
Weights:
Cost of Capital
Market Value
Weights
After tax cost of bank loan
1.29%
$500
3.33%
0.04%
After tax cost of long-term debt
2.31%
$2,500
16.67%
0.39%
Cost of Common Equity
8.64%
$12,000
80.00%
6.91%
$15,000
WACC =
7.34%
Free Cash Flow
(16,000,000)
400,000
3,900,000
4,500,000
4,500,000
4,500,000
6,580,000
2016-2022
What discount rate should Worldwide Paper Company (WPC) use to
analyze those cash flows? Explain your recommended rate and the
assumptions that you...
PQR Company has the following: Borrowing rate of 7.0% Cost of equity of 25.0% Corporate tax...
PQR Company has the following:
Borrowing rate of 7.0%
Cost of equity of 25.0%
Corporate tax rate of 21.0%
Book value of debt = $630,000
Book value of equity = $1,250,000
Market value of debt = $630,000
Market Value of equity = $2,750,000
PQR Company’s weighted average cost of capital (WACC) is:
21.6%
19.0%
21.4%
18.5%
Please show work, thank you in advance. What is the component cost of equity capital for...
Please show work, thank you in advance.
What is the component cost of equity capital for a stock
selling for $50, that is expected to pay a dividend of $4 next
year, with an expected constant growth rate of
12%?
16%
12%
20% (correct)
8%
Thorton Corp. plans to finance a $1 million project with
30% debt and 70% equity. The before tax cost of debt is 8%; the
cost of equity is 20%. Thorton's tax rate is 40%. Calculate...
X Ltd’s financing policy has established that the optimal capital structure is approximately 60% ordinary equity;...
X Ltd’s financing policy has established that the optimal
capital structure is approximately 60% ordinary equity; 10%
preferred equity and 30% debt. X marginal corporate tax rate is
40%. X needs to raise shs 600 million to finance a new project and
has collected the following information: The current market price
of common stock is shs 500 per share and the firm just issue shs 50
dividend per share. Dividends are expected to grow at a rate of 10%
per...
A firm is solely financed by equity with market value of $50,000 and cost of equity...
A firm is solely financed by equity with market value of
$50,000 and cost of equity of 10%. It wishes to raise another
$30,000 via corporate bonds with cost of debt of 5% and use all of
it to buy back outstanding equity (no cash holding). Hold
investment policies fixed.
In a MM world without taxes,
What would the firm value be after debt issuance? Firm Value =
Equity Value + Debt Value - Cash.
What would be the cost...
ADVERTISEMENT
Need Online Homework Help?
Get Answers For Free
Most questions answered within 1 hours.
ADVERTISEMENT
Active Questions
asked 11 minutes ago
asked 17 minutes ago
asked 20 minutes ago
asked 41 minutes ago
asked 53 minutes ago
asked 56 minutes ago
asked 1 hour ago
asked 1 hour ago
asked 1 hour ago
asked 2 hours ago
asked 2 hours ago
asked 2 hours ago