Question

6，A
company has an EBIT of $4,865 in perpetuity. The unlevered cost of
capital is 16.70%, and there are 27,970 common shares outstanding.
The company is considering issuing $10,660 in new bonds at par to
add financial leverage. The proceeds of the debt issue will be used
to repurchase equity. The YTM of the new debt is 11.75% and the tax
rate is 36%. What is the cost of the levered equity after the
restructuring?

Answer #1

WACC after restructuring | |||||||

Value of Unlevered firm = | |||||||

EBIT*(1-Tax)/Re(levered) | |||||||

EBIT = | 4865 | ||||||

Tax rate = | 36% | ||||||

Re (unlevered) | 16.70% | ||||||

Value of UnLevered firm = | 18644.31 | ||||||

Value of levered firm = | 22481.91 | ||||||

18644.31+10660*36% | |||||||

Debt to borrow = | 10660 | ||||||

YTM on debt = | 11.75% | ||||||

RE (Levered)= | 16.7%+(16.7%-11.76%)*(10660/(22481.91-10660)*(1-36%) | ||||||

19.56% | |||||||

Answer = |
19.56% |

21，A company has an EBIT of $4,750 in perpetuity. The unlevered
cost of capital is 16.46%, and there are 27,230 common shares
outstanding. The company is considering issuing $10,410 in new
bonds at par to add financial leverage. The proceeds of the debt
issue will be used to repurchase equity. The YTM of the new debt is
11.52% and the tax rate is 35%. What is the weighted average cost
of capital after the restructuring?

A company has an EBIT of $3,715 in perpetuity. The unlevered
cost of capital is 14.30%, and there are 20,570 common shares
outstanding. The company is considering issuing $8,160 in new bonds
at par to add financial leverage. The proceeds of the debt issue
will be used to repurchase equity. The YTM of the new debt is 9.45%
and the tax rate is 26%. What is the weighted average cost of
capital after the restructuring?
Question 12 options:
12.56%
12.88%...

A company has an EBIT of $4,750 in perpetuity. The un levered
cost of capital is 16.46%, and there are 27,230 common shares
outstanding. The company is considering issuing $10,410 in new
bonds at par to add financial leverage. The proceeds of the debt
issue will be used to repurchase equity. The YTM of the new debt is
11.52% and the tax rate is 35%. What is the weighted average cost
of capital after the restructuring?
a) 13.44
b) 13.78...

The ABC firm is currently unlevered and is valued at $800,000.
Assuming the current of cost of equity is 10%. If the firm is
issuing $250,000 in new debt with an 7.6% interest rate. it would
repurchase $250,000 of stock with the proceeds of the debt issue.
There are currently 28,000 shares outstanding and its effective
marginal tax bracket is 25%. If cost of equity increases to 12.82%,
what will ABC’s new WACC be after debt issue?

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million in earnings before interest and taxes (EBIT) each year. The
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million in debt with a pre-tax cost of 6% to its capital structure
and using the proceeds to reduce equity by a like amount as to keep
total invested capital unchanged. The firm pays a tax rate of
28%.
Assuming that the company's EBIT stream...

An unlevered company with a cost of equity of 12% expects to
generate $6 million in earnings before interest and taxes (EBIT)
each year into perpetuity. The firm pays a tax rate of 26%.
Based on its after-tax earnings and cost of equity, what is the
value of the firm?
An unlevered company with a cost of equity of 16% generates $5
million in earnings before interest and taxes (EBIT) each year. The
decides to alter its capital structure to...

Lone Star Industries expects to generate $75,000 of earnings
before interest and taxes (EBIT) in perpetuity. The company
distributes all its earnings as dividends at the end of each year.
The firm’s unlevered cost of capital is 18%, and the corporate tax
rate is 40%.
a. What is the value of the company as an unlevered firm?
b. Suppose Lone Star just issued $160,000 of perpetual debt with
an interest rate of 10% and used the proceeds to repurchase stock....

CCC is an unlevered firm with a cost of capital of 13.4%. The
company is considering adding debt to its capital structure to
reduce equity. Specifically, the company is evaluating the
consequences of adding $4 million in perpetual debt at a pre-tax
cost of 6.3%. The firm expects to generate EBIT of $4 million every
year into perpetuity. Assume interest expense is tax deductible.
The firm pays a tax rate of 33%. Ignore financial distress
costs.
Based on MM Prop...

A company has a cost of equity of 13.06% and an unlevered cost
of capital of 9.22%. The company has $16,720 in debt that is
selling at par value. The levered value of the firm is $29,724, and
the tax rate is 25%. What is the pre-tax cost of debt?
Question 3 options:
4.98%
5.11%
5.24%
5.37%
5.50%

Company U has no debt outstanding currently and the cost of
equity is 12%. Its EBIT is expected to be $ 201896 every year
forever. The tax rate is 35%. Calculate the value of the firm.
Company U has no debt outstanding currently and the cost of equity
is 12%. Its EBIT is expected to be $ 201896 every year forever. The
tax rate is 35%.Calculate the value of the firm if it borrows $
453493 and uses the proceeds...

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