Question

5- On?line broker Swab?Qtips has a beta of? 1.1, and its market return and risk?free

rates are? 15% and? 5%, respectively. What is? Swab's cost of? equity?

3- Colt Manufacturing has two? divisions: 1)? pistols; and? 2) rifles. Betas for the two divisions have been determined to be beta ?(pistol)equals=0.5 and beta ?(rifle)equals=1.0. The current? risk-free rate of return is 3.5?%, and the expected market rate of return is 7.5%. The? after-tax cost of debt for Colt is 4.5?%. The pistol? division's financial proportions are 42.5?% debt and 57.5?% ?equity, and the rifle? division's are 52.5?% debt and 47.5?% equity. a. What is the pistol? division's WACC? b. What is the rifle? division's WACC?

Answer #1

Pb 5:

Cost of Equity = Rf + beta ( Rm - Rf)

= 5% + 1.1 ( 15% - 5%)

= 5% + 1.1 (10%)

= 5% + 11%

= 16%

Pb 3:

COst of Equity of Pistol = Rf + beta ( Rm - Rf)

= 3.5% + 0.5 ( 7.5% - 3.5%)

= 3.5% + 0.5 (4%)

= 3.5% + 2%

= 5.5%

COst of Equity of Rifle = Rf + beta ( Rm - Rf)

= 3.5% + 1.0 ( 7.5% - 3.5%)

= 3.5% + 1.0 (4%)

= 3.5% + 4%

= 7.5%

WACC = Weighted Avg cost of sources in capital structure

WACC of Pistol:

WACC of Rifle:

Colt Manufacturing has two divisions: 1) pistols; and 2)
rifles. Betas for the two divisions have been determined to be beta
(pistol)equals=0.4 and beta (rifle)equals=0.8
The current risk-free rate of return is 11%,and the expected
market rate of return is 8%. The after-tax cost of debt for Colt
is 77%.The pistol division's financial proportions are 32.5%
debt and 67.5 equity, and the rifle division's are 42.5% debt
and 57.5% equity.
a. What is the pistol division's WACC?
b. What is...

Colt Manufacturing has two divisions: 1) pistols; and 2)
rifles. Betas for the two divisions have been determined to be
beta
(pistol)equals=0.7 and beta (rifle)equals=1.3 The current
risk-free rate of return is 1.5%, and the expected market rate of
return is 5.5 %. The after-tax cost of debt for Colt is 7%. The
pistol division's financial proportions are 32.5% debt and 67.5%
equity, and the rifle division's are 42.5% debt and 57.5%
equity.
a. What is the pistol division's WACC?...

Colt Manufacturing has two divisions: 1) pistols; and 2)
rifles. Betas for the two divisions have been determined to be beta
(pistol) = 0.5 and beta (rifle)=1.1. The current risk-free rate
of return is 3%, and the expected market rate of return is 10%.
The after-tax cost of debt for Colt is 4.5%. The pistol
division's financial proportions are 35.0% debt and 65.0%
equity, and the rifle division's are 45.0% debt and 55.0%
equity.
a. What is the pistol division's...

The current risk-free rate is 4% and the expected rate of return
on the market portfolio is 10%. The Brandywine Corporation has two
divisions of equal market value, i.e. the market value of their
assets is the same. The debt to equity ratio (D=E) is 3/7. The
companyís debt can be assumed to present no risk of default. For
the last few years, the Brandy division has been using a discount
rate of 12% in capital budgeting decisions and 1...

HR Industries (HRI)
has a beta of 1.1; LR Industries's (LRI) beta is 0.5. The risk-free
rate is 6%, and the required rate of return on an average stock is
13%. The expected rate of inflation built into rRF falls
by 1.5 percentage points, the real risk-free rate remains constant,
the required return on the market falls to 10.5%, and all betas
remain constant. After all of these changes, what will be the
difference in the required returns for HRI...

1. The market rate of return is 10.5% and the risk-free rate is
1.1%. What will be the change in a stock's expected rate of return
if its beta increases from 0.8 to 1.0?
18.80%
1.88%
1.62%
16.20%
2. "If the market portfolio is expected to return 13%, then a
portfolio that is expected to return 10%: "
plots above the security market line
plots to the right of the market on an SML graph.
is diversified.
has a beta...

Your company has a Beta of 1.75. a) If risk-free rates are 1%
and the market has an expected return of 8%, what is your company’s
expected return? b) Assuming they are all equity financed, should
they undertake a project with a 12% IRR? Why or why not?

Mackenzie Company has a beta of 1.2, the risk-free rate is 3.5%,
and it estimates the market risk premium to be 6%. It has a cost of
debt of 6%, and is financed 70% with equity and 30% with debt.
Mackenzie’s tax rate is 21%. Estimate the equity cost of capital
for Mackenzie. What is this firm's WACC?

Watta Corp has a beta of .80. The market risk premium is 6%,
and the risk-free rate is 6%. Watta’s last dividend was $20 per
share, and the dividend is expected to grow at 8% indefinitely. The
stock currently sells for $45 per share. What’s Watta’s cost of
equity capital?
From worksheet 1 chapter 14, suppose Watta Corp from #5 has a
target debt-equity ratio of 50%. Its cost of debt is 9% before
taxes. If the tax rate is...

Company Y has common stock beta 1.4. Risk free rate is 5% and
market risk premium is 8%. Company Y cost of debt is 5,4%. Company
tax rate is 35%. Debt to equity ratio is 0.6.
Calculate E/V ratio. Express your answer as %.

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 39 minutes ago

asked 43 minutes ago

asked 58 minutes ago

asked 59 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 3 hours ago