Question

The company has a target D/E ratio = 2/3. ⚫ Bonds with face value of $1,000...

The company has a target D/E ratio = 2/3.

⚫ Bonds with face value of $1,000 pay a 10% coupon, mature in 20 years, and sell for $849.54.

⚫ The company stock beta is 1.2. ⚫ Risk-free rate is 10%, and market risk premium is 5%.

⚫ The company is a constant-growth firm that just paid a dividend of $2, sells for $27 per share, and has a growth rate of 8%.

⚫ The company’s marginal tax rate is 40%.

  What is the company’s weighted average cost of capital?

A.14.4%

B.12.5%

C.10.7%

D. 11.6%

What is the company’s after-tax cost of debt?

A.

7.2%
B.

12%
C.

9%
D.

5.4%

What is the company’s cost of equity ?

A.

16%
B.

9.6%
C.

7.2%
D.

12%
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Answer 1

B. 12.5%

Answer 2

A. 7.2%

Answer 3

A. 16%

Answer 1

WACC = 7.2%* 2 / 5 + 16% * 3 / 5 = 12.5%

Answer 2

Answer 3

Ke = Rf + Beta * MRP

Ke = 10% + 1.2 * 5% = 16%

Please rate thumbs Up.

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
The company has a target D/E ratio = 2/3. ⚫ Bonds with face value of $1,000...
The company has a target D/E ratio = 2/3. ⚫ Bonds with face value of $1,000 pay a 10% coupon, mature in 20 years, and sell for $849.54. ⚫ The company stock beta is 1.2. ⚫ Risk-free rate is 10%, and market risk premium is 5%. ⚫ The company is a constant-growth firm that just paid a dividend of $2, sells for $27 per share, and has a growth rate of 8%. ⚫ The company’s marginal tax rate is 40%....
The company has a target D/E ratio = 2/3. ⚫ Bonds with face value of $1,000...
The company has a target D/E ratio = 2/3. ⚫ Bonds with face value of $1,000 pay a 10% coupon, mature in 20 years, and sell for $849.54. ⚫ The company stock beta is 1.2. ⚫ Risk-free rate is 10%, and market risk premium is 5%. ⚫ The company is a constant-growth firm that just paid a dividend of $2, sells for $27 per share, and has a growth rate of 8%. ⚫ The company’s marginal tax rate is 40%....
ABC company’s cost of equity is 12.5%. The company has a target debt-equity ratio of 50%....
ABC company’s cost of equity is 12.5%. The company has a target debt-equity ratio of 50%. It cost of debt is 7.5 percent, before taxes. If the tax rate is 21 percent, what is the weighted average cost of capital? A. 10.00 percent B. 10.31 percent C. 10.83 percent D. 10.97 percent E. None of the above.
Company XYZ has a target capital structure of 20 percent debt and 80 percent equity. Its...
Company XYZ has a target capital structure of 20 percent debt and 80 percent equity. Its bonds pay an average 6 percent coupon (semi-annual payout), mature in 7 years, and sell for $1049.54 per $1,000 in face value. The company stock beta is 1.02 versus the market. The risk-free rate of interest is 4 percent and the market risk premium is 6 percent. The company is a mature, constant growth firm that just paid a dividend (D0) of $2.57 and...
.The firm's noncallable bonds mature in 15 years, have 7.50% annual coupon, a par value $1,000,...
.The firm's noncallable bonds mature in 15 years, have 7.50% annual coupon, a par value $1,000, and a market price of $1,075. The company’s tax rate is 40%. The risk-free rate is 2.50%, the market risk premium is 6.50%, and the stock’s beta is 1.30. The target capital structure consists of 35% debt, 10% preferred stock, and the balance is common equity. The preferred stock currently trades at $50 and has a dividend of $4 per share. What is the...
Target Corp has a current price of $73. It also has 521 million shares outstanding and...
Target Corp has a current price of $73. It also has 521 million shares outstanding and the market value of debt is $11,317 million. The company’s equity beta is 0.72. Its tax rate is 20%. Assume that the risk-free rate is 2.5% and the market return is 10%. The company’s cost of debt is 4.2%.    Compute the weighted average cost of capital (WACC) for Target Corp.If an investment project.generates a return of 10% and has similar risk level as...
KD Corp. issued 7.6% semiannual-pay coupon bonds five years ago at par value. The bonds mature...
KD Corp. issued 7.6% semiannual-pay coupon bonds five years ago at par value. The bonds mature 10 years from today and are currently selling at $1,103.19. The beta for the KD Corp. common stock is 1.2. The firm has a target capital structure of 30% debt and 70% equity, but the actual weights reported on the firm's balance sheet are 45% debt and 55% equity. KD Corp has a 21% marginal tax rate. Assume the risk-free rate is 3% and...
Assume the current dividend payment for Franklin Inc. is $5/share, and it will grow at the...
Assume the current dividend payment for Franklin Inc. is $5/share, and it will grow at the constant rate of 9% per year. The required rate of return for the Franklin Inc. is 15%. Now with -Current corporate Tax Rate is 40%. -Franklin Inc. has 15-year, 12% coupon, semiannual payment, non-callable bonds sell for $1,150, future value is $1,000. -Beta = 1.2; Risk-free rate = 7%; Market risk premium = 6% -Management has determined the target capital structure for the company...
A company has a targeted capital structure of 50% debt and 50% equity. Bond (debt) with...
A company has a targeted capital structure of 50% debt and 50% equity. Bond (debt) with face value (or principal amount) of $1200.00 paid 12% coupon annually, mature in 20 years and sell for $950.90. The company’s stock beta is 1.4, the risk free rate is 9% and market risk premium is 6%. The company has a constant growth rate of 6% and a just paid dividend of $3 and sells at $32 per share. If the company’s marginal, tax...
Suppose that you have following information about the company: - The company has 2 billion shares...
Suppose that you have following information about the company: - The company has 2 billion shares outstanding - The market value of its debt is € 4 billion - The free cash flow to the firm is currently € 1.2 billion - The equity beta is 0.9; the equity (market) risk premium is 7.5%; the risk-free rate is 3.5% - The before-tax cost of debt is 7% - The tax rate is 20% - The company is currently and in...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT