Question

A firm has zero debt and an overall cost of capital of 12.9 percent. The firm...

A firm has zero debt and an overall cost of capital of 12.9 percent. The firm is considering a new capital structure having a debt to equity ratio of .60. The interest rate on the debt would be 7.85 percent and the corporate tax rate is 22 percent. What would be the cost of equity with the new capital structure if you include taxes. 17.3 15.3 10.8 16.1 12.9
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

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
A levered firm has a target capital structure of 30 percent debt and 70 percent equity....
A levered firm has a target capital structure of 30 percent debt and 70 percent equity. The aftertax cost of debt is 5.1 percent, the tax rate is 35 percent, and the cost of equity is 13.1 percent. The firm is considering a project that is equally as risky as the overall firm. The project has an initial cash outflow of $1.2 million and annual cash inflows of $516,000 at the end of each year for 3 years. What is...
An unlevered firm has a cost of capital of 12.46 percent and a tax rate of...
An unlevered firm has a cost of capital of 12.46 percent and a tax rate of 35 percent. The firm is considering a new capital structure with 35 percent debt. The interest rate on the debt would be 6.68 percent. What would be the firm's levered cost of capital? Multiple Choice 14.48% 14.78% 13.90% 14.27% 13.94%
Richard Co. is a zero growth company. It currently has zero debt and its earnings before...
Richard Co. is a zero growth company. It currently has zero debt and its earnings before interest and taxes (EBIT) are $80,000. CSUSM 's current cost of equity is 10%, and its tax rate is 40%. The firm has 10,000 shares of common stock outstanding selling at a price per share of $48.00. Refer to Exhibit 16.1. Assume that Richard Co. is considering changing from its original capital structure to a new capital structure with 35% debt and 65% equity.This...
Suppose the WACC (weighted average cost of capital) of a firm is 12.5 percent, while its...
Suppose the WACC (weighted average cost of capital) of a firm is 12.5 percent, while its before-tax cost of debt is 3 percent. The firm’s debt-to-equity ratio is 1, and the cost of equity of the corresponding unlevered firm is 15 percent. By assuming that the Modigliani-Miller Theorem with corporate taxes holds, answer the following questions. i) What is the effective corporate tax rate for the firm? ii) What is the cost of equity of the firm?
Dunkin currently has a capital structure of 60 percent debt and 40 percent equity, but is...
Dunkin currently has a capital structure of 60 percent debt and 40 percent equity, but is considering a new product that will be produced and marketed by a separate division. The new division will have a capital structure of 80 percent debt and 20 percent equity. Dunkin has a current beta of 2.1, but is not sure what the beta for the new division will be. AMX is a firm that produces a product similar to the product under consideration...
Blitz Industries has debt-equity ratio of 1.3. Its WACC is 8.5 percent, and its cost of...
Blitz Industries has debt-equity ratio of 1.3. Its WACC is 8.5 percent, and its cost of debt is 6.2 percent. The corporate tax rate is 22 percent. What is the company's cost of equity capital? What is the company's unlevered cost of equity capital? What would the cost of equity be if the debt-equity ratio were 2, 1.0, and 0?
Best Bagels, Inc. (BB) currently has zero debt, an unleveraged firm. The firm has a total...
Best Bagels, Inc. (BB) currently has zero debt, an unleveraged firm. The firm has a total market value of $461,600. Management is considering recapitalizing by issuing enough debt so that the firm has a capital structure consisting of 30% debt and 70% equity, based on a market value at a before tax cost of 7%. Best Bagels will use the proceeds to repurchase stock at the new equilibrium market price. Its earnings before interest and taxes (EBIT) are $100,000, and...
Richard is a zero growth company. It currently has zero debt and its earnings before interest...
Richard is a zero growth company. It currently has zero debt and its earnings before interest and taxes (EBIT) are $85,000. Richard's current cost of equity is 11%, and its tax rate is 21%. The firm has 15,000 shares of common stock outstanding. Assume that Richard is considering changing from its original capital structure to a new capital structure with 39% debt and 61% equity. This results in a weighted average cost of capital equal to 8.7% and a new...
27. Now that your firm has​ matured, you are considering adding debt to your capital structure...
27. Now that your firm has​ matured, you are considering adding debt to your capital structure for the first time. Your​ all-equity firm has a market value of $21 million and you are considering issuing ​$2.1 million in debt with an interest rate of 9​% and using it to repurchase shares. You pay a corporate tax rate of 25​%. Assume taxes are the only imperfection and the debt is expected to be permanent. a. What will be the total value...
Your company has an equity cost of capital of 10%, debt cost of capital of 6%,...
Your company has an equity cost of capital of 10%, debt cost of capital of 6%, market capitalization of $10B, and an enterprise value of $14B. Your company pays a corporate tax rate of 35%. Your companymaintains a constant debt-to-equity ratio. a)What is the (net) debt value of your company? (Hint:Net debt = D–Excess cash) b)What is the(net)debt-to-equity ratio of your company? c)What is the unlevered cost of capital of your company?(Hint:When a firm has a target leverageratio, its unlevered...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT