Question

(urgent!!) Wholesale Supply has earnings before interest and taxes of $148,600. Debt is $220,000. The unlevered...

(urgent!!) Wholesale Supply has earnings before interest and taxes of $148,600. Debt is $220,000. The unlevered cost of equity is 13.6 percent while the pretax cost of debt is 7.4 percent. The tax rate is 21 percent. What is the weighted average cost of capital? (Hint: Find RE first)

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Value of Firm = EBIT (1-tax) / Cost of Equity + (Debt x tax rate)

Value of Firm = 148600(1-.21)/13.60% + (220000X 21%)

value of firm = 863191.176 + 46200

value of firm = 909391.176

% of debt = 220000/909391.176 =24.19%

% of equity = 100- 24.19% = 75.81%

cost of capital = % of debt x cost of debt + % of equity x cost of equity

cost of capital = 24.19% x 7.4% (1-21%) + 75.81% x 13.60%

cost of capital = 11.72% (rounded off to two decimal places)

Thumbs up please! Thank you

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
Jemisen's firm has expected earnings before interest and taxes of $1,400. Its unlevered cost of capital...
Jemisen's firm has expected earnings before interest and taxes of $1,400. Its unlevered cost of capital is 13 percent and its tax rate is 34 percent. The firm has debt with both a book and a face value of $1,800. This debt has a 7 percent coupon and pays interest annually. What is the firm's weighted average cost of capital? A) 12.03 percent B) 12.88 percent C) 12.50 percent D) 11.97 percent E) 12.20 percent
Hanover Industries has expected earnings before interest and taxes of $630,300, an unlevered cost of equity...
Hanover Industries has expected earnings before interest and taxes of $630,300, an unlevered cost of equity of 14.7 percent, and a combined tax rate of 23 percent. The company also has 11,000 senior bonds outstanding that carry a coupon rate of 7 percent. The debt is selling at par value. What is the value of this company? What is the target capital structure of the firm if the levered cost of equity is 17.25? Assume MM with taxes holds.
Hanover Industries has expected earnings before interest and taxes of $630,300, an unlevered cost of equity...
Hanover Industries has expected earnings before interest and taxes of $630,300, an unlevered cost of equity of 14.7 percent, and a combined tax rate of 23 percent. The company also has 11,000senior bonds outstanding that carry a coupon rate of 7 percent. The debt is selling at par value. What is the value of this company? What is the target capital structure of the firm if the levered cost of equity is 17.25? Assume MM with taxes holds.
5. Hanover Industries has expected earnings before interest and taxes of $630,300, an unlevered cost of...
5. Hanover Industries has expected earnings before interest and taxes of $630,300, an unlevered cost of equity of 14.7 percent, and a combined tax rate of 23 percent. The company also has 11,000 senior bonds outstanding that carry a coupon rate of 7 percent. The debt is selling at par value. What is the value of this company? What is the target capital structure of the firm if the levered cost of equity is 17.25? Assume MM with taxes holds.
L.A. Clothing has expected earnings before interest and taxes of $2,300, an unlevered cost of capital...
L.A. Clothing has expected earnings before interest and taxes of $2,300, an unlevered cost of capital of 12 percent and a tax rate of 33 percent. The company also has $2,900 of debt that carries an 8 percent coupon. The debt is selling at par value. What is the value of this firm?
Heinz Incorporation has expected earnings before interest and taxes of $2,843,270, an unlevered cost of capital...
Heinz Incorporation has expected earnings before interest and taxes of $2,843,270, an unlevered cost of capital of 10.2 percent, and a tax rate of 25 percent. The company has $7,900,000 of debt that carries a 6.6 percent coupon. The debt is selling at par value. What is the value of this company? $24,412,506 $23,756,980 $22,881,397 $20,362,114 $25,644,382
An unlevered firm has a cost of capital of 16% and earnings before interest and taxes...
An unlevered firm has a cost of capital of 16% and earnings before interest and taxes of $225,000. A levered firm with the same operations and assets has both a book value and a face value of debt of $850,000 with an 8% annual coupon. Assume no taxes, no bankruptcy. What is the value of equity for the levered firm? Select one: A. 624,250 B. 556,250 C. 850,000 D. 556,250
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...
ABC Co. has $100,000 of Debt outstanding, and the corporate tax rate is 25 percent. Unlevered...
ABC Co. has $100,000 of Debt outstanding, and the corporate tax rate is 25 percent. Unlevered cost of capital was 12 percent, and cost of debt is 10%. Earnings before Interest and Taxes (EBIT) is $78,000. A) What is the present value of tax shield on debt? B) What is the value of the levered firm? C) What is the target debt-to-equity ratio if the targeted levered cost of equity is 13 percent?
Dickson, Inc., has a debt-equity ratio of 2.35. The firm's weighted average cost of capital is...
Dickson, Inc., has a debt-equity ratio of 2.35. The firm's weighted average cost of capital is 12 percent and its pretax cost of debt is 9 percent. The tax rate is 24 percent. What is the company's cost of equity capital? What is the unlevered cost of equity capital? What would the company's weighted average cost of capital be if the company's debt-equity ratio were .75 and 1.35? Please answer this in Excel, thank you
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT