Question

Which of the following assets is NOT the operating assets A. Accounts Receivable B. Marketable Securities...

Which of the following assets is NOT the operating assets

A. Accounts Receivable B. Marketable Securities C. Net Fixed Assets D. Inventories

To help finance a major expansion, a company sold a noncallable bond several years ago that now has 15 years to maturity. This bond has a 5% annual coupon, paid semiannually, it sells at a price of $985, and it has a par value of $1,000. If the company’s tax rate is 21%, what component cost of debt should be used in the WACC calculation?

A.4.06

B.9.41

C.5.14

D.2.57

You were hired as a consultant to a company, whose target capital structure is 40% debt, 10% preferred, and 50% common equity. The after-tax cost of debt is 6.0%, the cost of preferred is 7.5%, and the cost of retained earnings is 13.25%. The firm will not be issuing any new stock. What is its WACC?

A. 9.48%

B. 9.78%

C. 10.07%

D. 10.37%

A Stock is selling for $50 in the market. The required rate of return is 9%. The most recent dividend pays is D0=$3 and dividends are expected to grow at a constant rate g. What is the capital gain for this stock?

A. 2.83 %

B.4.19%

C.4.81%

D.9.0%

Homework Answers

Answer #1

Q1) C) Net fixed assets

Explanation: Net fixed assets are fixed assets and are used for long term investment.

Q2) A) 4.06%

Explanation: Using financial calculator to calculate the ytm

Inputs: N= 15 × 2 = 30

Pv= -985

Fv= 1,000

Pmt= 5% / 2 × 1,000 = 25

I/y= compute

We get, ytm of the bond as 2.57% × 2 = 5.14%

In calculation for wacc , we use after tax cost debt. Therefore, after tax cost of debt is

5.14% × (1 - 0.21) = 4.06%

Q3) B) 9.78%

Explanation: WACC= weight of debt × cost of debt + weight of preference share × cost of preference share + weight of equity × cost of equity

= 0.40 × 6% + 0.10 × 7.5% + 0.50 × 13.25%

= 2.4% + 0.75% + 6.625%

= 9.78%

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
1. Which of the following is not a capital component when calculating the weighted average cost...
1. Which of the following is not a capital component when calculating the weighted average cost of capital (WACC)? Marketable securities Preferred stock Long-term debt Common equity To help finance a major expansion, a company sold a noncallable bond several years ago that now has 15 years to maturity. This bond has a 10.25% annual coupon, paid semiannually, it sells at a price of $985, and it has a par value of $1,000. If the company’s tax rate is 10%,...
Alberto Inc. currently holds $410,000 of non-operating marketable securities. Its long-term debt is $1,500,000, but it...
Alberto Inc. currently holds $410,000 of non-operating marketable securities. Its long-term debt is $1,500,000, but it has never issued preferred stock. Alberto has 65,000 shares of stock outstanding. Its current free cash flow is $180,000, and this FCF is expected to grow at a constant 9% rate. Alberto has never paid a dividend, and it’s not known when the firm might begin paying dividends. The weighted average cost of capital WACC is 15%. Based on this information: (a) Calculate Alberto’s...
Biwott Company Balance Sheet As of December 31, 2021 Assets Cash $  60,000 Accounts Receivable   60,000 Marketable...
Biwott Company Balance Sheet As of December 31, 2021 Assets Cash $  60,000 Accounts Receivable   60,000 Marketable Securities   80,000 Land   20,000 Equipment (net) 160,000 Total $ 380,000 Liabilities and Stockholders' Eqiuity Accounts Payable $  30,000 Taxes Pay. in 10 days   20,000 Bonds Pay. in 4 yrs.   80,000 Common Stock 125,000 Retained Earnings 125,000 Total $ 380,000 What amount of quick assets did Biwott Company hold at December 31, 2021? a. $120,000 b. $140,000 c. $200,000 d. $220,000 Cook Corporation Balance Sheet As...
Common-Size Balance Sheet 2016 Cash and marketable securities $ 490 1.5 % Accounts receivable 6,000 18.2...
Common-Size Balance Sheet 2016 Cash and marketable securities $ 490 1.5 % Accounts receivable 6,000 18.2 Inventory 9,490 28.8 Total current assets $ 15,980 48.4 % Net property, plant, and equipment 17,020 51.6 Total assets $ 33,000 100.0 % Accounts payable $ 7,210 21.8 % Short-term notes 6,790 20.6 Total current liabilities $ 14,000 42.4 % Long-term liabilities 6,970 21.1 Total liabilities $ 20,970 63.5 % Total common shareholders’ equity 12,030 36.5 Total liabilities and shareholders’ equity $ 33,000 100.0...
4) Common-Size Balance Sheet 2016 Cash and marketable securities $ 450 1.4 % Accounts receivable 5,980...
4) Common-Size Balance Sheet 2016 Cash and marketable securities $ 450 1.4 % Accounts receivable 5,980 18.1 Inventory 9,530 28.9 Total current assets $ 15,960 48.3 % Net property, plant, and equipment 17,050 51.7 Total assets $ 33,010 100.0 % Accounts payable $ 7,220 21.9 % Short-term notes 6,850 20.8 Total current liabilities $ 14,070 42.6 % Long-term liabilities 7,010 21.2 Total liabilities $ 21,080 63.9 % Total common shareholders’ equity 11,930 36.1 Total liabilities and shareholders’ equity $ 33,010...
Chelsea’s rentals recently hired you as a consultant to estimate the company’s WACC. You have obtained...
Chelsea’s rentals recently hired you as a consultant to estimate the company’s WACC. You have obtained the following information. (1) The firm's noncallable bonds mature in 15 years, have an 7.50% annual coupon, a par value of $1,000, and a market price of $1,075.00. (2) The company’s tax rate is 40%. (3) The risk-free rate is 2.50%, the market risk premium is 6.50%, and the stock’s beta is 1.30. (4) The target capital structure consists of 35% debt, 10% preferred...
Please show work/formulas and financial calculator steps, if used. Answer as much as you can (The...
Please show work/formulas and financial calculator steps, if used. Answer as much as you can (The following information applies to Problems 1-4) The Collins Group, a leading producer of custom automobile accessories, has hired you to estimate the firm's weighted average cost of capital. The balance sheet and some other information are provided below. Assets Current assets                                        $ 38,000,000 Net plant, property, and equipment                    101,000,000 Total assets                                          $139,000,000 Liabilities and Equity Accounts payable                                      $ 10,000,000 Accruals                                                9,000,000 Current liabilities                                   $...
Which of the following statements is correct? a. The WACC should include only after-tax component costs....
Which of the following statements is correct? a. The WACC should include only after-tax component costs. Therefore, the required rates of return (or "market rates") on debt, preferred, and common equity (rd, rps, and rs or e) must be adjusted to an after-tax basis before they are used in the WACC equation. b. When the MCC schedule is developed, the first break point always occurs as a result of using up retained earnings. c. If a company with a debt-to-assets...
Badmmans Firearms Company has the following capital structure, which it considers to be optimal: debt =...
Badmmans Firearms Company has the following capital structure, which it considers to be optimal: debt = 17%, preferred stock = 12%, and common equity = 71%. Badman’s tax rate is 35%, and investors expect earnings and dividends to grow at a constant rate of 8% in the future. Badman's expected net income this year is $395,840, and its established dividend payout ratio is 24%. Badmans paid a dividend of $6.75 per share last year (D 0 ), and its stock...
Please use the following Balance Sheet to answer the questions below Assets Cash $150,000.00 Marketable Securities...
Please use the following Balance Sheet to answer the questions below Assets Cash $150,000.00 Marketable Securities $200,000.00 Accounts Receivable $150,000.00 Inventories $50,000.00 Prepaid Taxes and Insurance $30,000.00 Manufacturing Plant at cost $600,000.00 Less Accumulated Depreciation $100,000.00 Net fixed Assets $500,000.00 Goodwill $20,000.00 Liabilities and Shareholders Equity Notes Payable $50,000.00 Accounts Payable $100,000.00 Income Taxes Payable $80,000.00 Long Term Mortgage Bonds $400,000.00 Preferred Stock, 6%, $100 par value (1,000 shares) $100,000.00 Common Stock, $15 par value (10,000 shares) $150,000.00 Capital Surplus...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT