A company finances its operations with 60 percent debt and the rest using equity. The annual yield on the company's debt is 4.1% and the required rate of return on the stock is 12.4%. What is company's WACC? Assume the tax rate is 30%
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A company finances its operations with 60 percent debt and the rest using equity. The annual yield on the company's debt is 4.1% and the required
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- A company has a total return on capital before tax of 10%. The interest rate on debt is 4% and the debt ratio is 40%. What will be the company's return on equity before tax?A company is financed with equity of $4.5 million and a bank loan of $2.5 million with an interest rate of 8.6% per annum. The EBIT is $1.12 million. The applicable tax rate is 19%. Use the above information to calculate the following: a) change in the return on equity and the degree of financial leverage given a 15% increase in EBIT next year, b) change in the return on equity and the degree of financial leverage given a 5% decrease in EBIT in the following year (the year following the year in which EBIT grew by 15%).What is the cost of debt if a company has $100,000 of debt with an annual interest rate of 5% and an income tax rate of 30%?
- The Paulson Company’s year-end balance sheet is shown below. Its cost of commonequity is 14%, its before-tax cost of debt is 10%, and its marginal tax rate is 40%.Assume that the firm’s long-term debt sells at par value. The firm’s total debt, which isthe sum of the company’s short-term debt and long-term debt, equals $1,167. The firm has576 shares of common stock outstanding that sell for $4.00 per share. Calculate Paulson’sWACC using market-value weights.A company has a WACC of 10%. It can borrow at 4%. Assume that the company has a target capital structure of 60% equity, 40% debt. The corporate tax rate is 20%. Based on MM Theory with taxes, what is the cost of equity? What is the WACC?You have the following data for your company. Market Value of Equity: $520 Book Value of Debt: $130 Required rate of return on equity: 12% Required rate of return on debt (pre-tax): 7% Corporate tax rate: 25% The company's debt is assumed to be is reasonably safe, so the book value of debt is a reasonably approximation for the market value of debt. What is the weighted average cost of capital for this company?
- Rain company whose tax rate is 40% has a total asset of P500,000,000 and earnings before interest and taxes of P200,000,000. The company’s target capital structure is 50% debt funded and 50% equity funded. The cost of new and old debt is constant at 8%. Retention ratio is 40%. 1. Determine the interest payment of Rain Company. 2. How much is the net income?A company has debt, equity share and overdraft financing. The overdraft is used to finance the day-to-day activities of the company when necessary. The after-tax cost of debt is 12%, the cost of equity is 20% and the after-tax cost of the overdraft is 18%. The market value of debt is R1 000 000, the market value of equity is R2 000 000 and the market value of the overdraft is R500 000. Calculate the company’s weighted average cost of capital (rounded to two decimal places). a. 18.33% b. 17.33% c. 18.43% d. 19.33% e. 17.43%A company is financed by both debt and common equity, and the market value of debt is 25% and equity is 75% of the total enterprise value. The corporate tax rate is 21%. Assume that the current long-term risk free interest rate is 2.5%, and the company’s debt yields 100bps over the long-term risk free rate. The historical bond risk premium has been 1.5%, and the historical equity risk premium has been 7.7%. Using the Brealey & Myers technique to determine the risk-free rate for the purposes of calculating equity beta, the beta of the company’s stock is 1.6. The company’s after-tax WACC is 10.68125% 1. For the company above, assuming the dollar amount of the debt is kept constant through time, what is the stock’s unlevered beta? 2. If the company above changed its financing so that the target ratio of the market value of Debt to the market value of Equity ratio were 15%/85%, what would the stock’s beta be? 3. And based on the 15%/85% Debt/Equity ratio, what would the after-tax WACC…
- Choose the correct letter of answer: In the current year, Company A had P15 Million in sales, while total fixed costs were held to P6 Million. The firm's total assets at year-end were P20 Million and the debt/equity ratio was calculated at 0.60. If the firm's EBIT is P3 Million, the interest on all debt is 9%, and the tax rate is 40%, what is the firm's return on equity? a. 11.16%b. 14.4%c. 18.6%d. 24.0%e. 28.5%PT. Sentosa Raya uses its own capital and debt capital. The agreed cost of debt is 10% and the interest to be paid on the debt is Rp. 3,000,000. The company earned an operating profit of Rp. 24,000,000 per year. The expected return is 30% per year. With these data, determine the value of the company and the company's cost of capital!Company Y has a target debt ratio of 55%. Currently its debt ratio is 60% and it expects to revert to the target ratio in the near future. The company has a market cost of equity of 20%. While it has no bonds, it has interest payments of R1 000 000 on liabilities of R10 000 000. Assume the tax rate is 28%. What is the WACC for the company? Ⓒa. 6.36% b. 9.00% c. 12.33% d. 12.96%