Question

Upton Umbrellas has a cost of equity of 11.5 percent, the YTM on the company's bonds...

Upton Umbrellas has a cost of equity of 11.5 percent, the YTM on the company's bonds is 6.1 percent, and the tax rate is 39 percent. The company's bonds sell for 103.1 percent of par. The debt has a book value of $405,000 and total assets have a book value of $951,000. If the market-to-book ratio is 2.71 times, what is the company's WACC?

Multiple Choice 5.43% 9.79% 8.24% 9.49% 8.13%

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Cost of Equity (Ke) = 11.50%

Cost of Debt (Kd) = 6.10%

Market value of Debt = $405,000 *103.10% = $417,555

Book value of value of Equity = Total Value of assets - total value of debt = $951,000 - $405,000 = $546,000

Market value of Equity = Total Book value * Market to book ratio = $546,000 * 2.71 = $1,479,660

Total market value = $1,479,660 + $417,555 = $1,897,215

WACC = (We * Ke) + (Wd * Kd * ( - T)

WACC = [0.7799 * 11.5%] + [0.2201*6.10%*(1-0.39)]

WACC = 8.97% + 0.82%

WACC = 9.79%

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
Upton Umbrellas has a cost of equity of 10.6 percent, the YTM on the company's bonds...
Upton Umbrellas has a cost of equity of 10.6 percent, the YTM on the company's bonds is 5.2 percent, and the tax rate is 39 percent. The company's bonds sell for 92.6 percent of par. The debt has a book value of $378,000 and total assets have a book value of $942,000. If the market-to-book ratio is 2.44 times, what is the company's WACC? Multiple Choice 8.86% 7.53% 4.68% 7.76% 9.09%
Upton Umbrellas has a cost of equity of 11.7 percent, the YTM on the company's bonds...
Upton Umbrellas has a cost of equity of 11.7 percent, the YTM on the company's bonds is 6.3 percent, and the tax rate is 35 percent. The company's bonds sell for 103.3 percent of par. The debt has a book value of $411,000 and total assets have a book value of $953,000. If the market-to-book ratio is 2.77 times, what is the company's WACC? Multiple Choice 9.61% 8.36% 8.48% 5.77% 10.02%
Upton Umbrellas has a cost of equity of 10.9 percent, the YTM on the company's bonds...
Upton Umbrellas has a cost of equity of 10.9 percent, the YTM on the company's bonds is 5.6 percent, and the tax rate is 40 percent. The company's bonds sell for 94.1 percent of par. The debt has a book value of $390,000 and total assets have a book value of $946,000. If the market-to-book ratio is 2.56 times, what is the company's WACC?
Upton Umbrellas has a cost of equity of 11.20 percent, the YTM on the company's bonds...
Upton Umbrellas has a cost of equity of 11.20 percent, the YTM on the company's bonds is 4.7 percent, and the tax rate is 35 percent. The company's bonds sell for 95.6 percent of par. The debt has a book value of $419,000 and total assets have a book value of $1,035,000. If the market-to-book ratio is 2.55 times, what is the company's WACC? Group of answer choices 9.17% 4.71% 9.55% 8.96% 7.57%
The Two Dollar Store has a cost of equity of 12.3 percent, the YTM on the...
The Two Dollar Store has a cost of equity of 12.3 percent, the YTM on the company's bonds is 5.8 percent, and the tax rate is 39 percent. If the company's debt–equity ratio is .58, what is the weighted average cost of capital? 8.62% 9.08% 6.75% 7.90% 9.69% Upton Umbrellas has a cost of equity of 12.2 percent, the YTM on the company's bonds is 6.1 percent, and the tax rate is 40 percent. The company's bonds sell for 103.8...
kolits Corp. has a cost of equity of 11.6 percent and an aftertax cost of debt...
kolits Corp. has a cost of equity of 11.6 percent and an aftertax cost of debt of 4.38 percent. The company's balance sheet lists long-term debt of $330,000 and equity of $590,000. The company's bonds sell for 96.3 percent of par and market-to-book ratio is 2.74 times. If the company's tax rate is 40 percent, what is the WACC? Multiple Choice 10.41% 11.06% 10.13% 9.01% 9.57%
Lydic Corporation has bonds on the market with 11.5 years to maturity, a YTM of 7.2...
Lydic Corporation has bonds on the market with 11.5 years to maturity, a YTM of 7.2 percent, a par value of $1,000, and a current price of $1,054. The bonds make semiannual payments. What must the coupon rate be on these bonds? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Coupon rate           %
The Two Dollar Store has a cost of equity of 12.6 percent, the YTM on the...
The Two Dollar Store has a cost of equity of 12.6 percent, the YTM on the company's bonds is 5.5 percent, and the tax rate is 39 percent. If the company's debt–equity ratio is .61, what is the weighted average cost of capital? 6.86% 9.70% 7.92% 8.64% 9.10%
The Two Dollar Store has a cost of equity of 12.1 percent, the YTM on the...
The Two Dollar Store has a cost of equity of 12.1 percent, the YTM on the company's bonds is 5.9 percent, and the tax rate is 39 percent. If the company's debt–equity ratio is .56, what is the weighted average cost of capital? Select one: 8.58% 6.65% 9.05% 9.65% 7.87%
Take It All Away has a cost of equity of 10.99 percent, a pretax cost of...
Take It All Away has a cost of equity of 10.99 percent, a pretax cost of debt of 5.44 percent, and a tax rate of 39 percent. The company's capital structure consists of 71 percent debt on a book value basis, but debt is 37 percent of the company's value on a market value basis. What is the company's WACC? 7.51% 12.31% 9.53% 8.94% 8.15%
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT