A company has an expected EBIT of $18,000 in perpetuity, a tax rate of 35%, and a debt-to- equity ratio of 0.75. The interest rate on the debt is 9.5%. The firm’s WACC is 9%. a) If the company has not debt, what would be the unlevered cost of capital and firm value? b) Suppose now the company has $55,714.29 in outstanding debt. Using your answer to part a) and M&M Proposition I with taxes, what is the value of this levered firm?
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A company has an expected EBIT of $18,000 in perpetuity, a tax rate of 35%, and a debt-to- equity ratio of 0.75. The interest rate on the debt is 9.5%. The firm’s WACC is 9%. a) If the company has not debt, what would be the unlevered cost of capital and firm value? b) Suppose now the company has $55,714.29 in outstanding debt. Using your answer to part a) and M&M Proposition I with taxes, what is the value of this levered firm?
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- 1 Suppose you have a firm with investor-supplied capital of $30 million. Further suppose that the WACC of the firm is 9%, and you are given the following income statement of the firm. Show work for all parts requiring computation. sales 26 M operating cost 16 m interest expense 3m Taxes (44%) What is the net income of the firm? What is the EVA of the firm? What is the difference between EVA and MVA?If company’s debt-to-equity ratio is 0.25, what is the weighted average cost of capital for the company if the required rate of return is 12. 1% and the cost of debt is 6.5%? Assume no tax rate A 7.90% B 7.62% C 10.98% D 10.70% E 9.30% Company is considering investing in a project. After consulting with their analysts, they find that the payback period for the project is 2 years and 6 months. If cash inflows are $4, 000. then the initial investment is. Answer rounded to the nearest whole dollarSuppose Tool Corp. is an unleveraged firm. It has an expected EBIT of 67,000 in Perpetuity and a tax rate of 35%. Its cost of equity is 10.25%. What is Tool Corp’s firm value? (SHOW YOUR WORK)
- 1 Suppose you have a firm with investor-supplied capital of $30 million. Further suppose that the WACC of the firm is 9%, and you are given the following income statement of the firm. Show work for all parts requiring computation. sales 26 M operating cost 16 m interest expense 3m Taxes (44%) What is the net income of the firm?Give typing answer with explanation and conclusion Suppose Abraxas Corp. has an equity cost of capital of 8.2%, market capitalization of $11.37 billion, and an enterprise value of $17.12 billion. Suppose Abraxas's debt cost of capital is 5.6% and its marginal tax rate is 21%. What is Abraxas's WACC?a firm has an asset base with a market value of 5.3 million. ITs debt is worth 2.5 million. if 0.2 million is paid in interest annually and the shareholders expect a 16% annual return, what is the weighted average cost of capital assuming no corporate taxes? what is the WACC if corporate taxes are 45%?
- 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%A firm has EBIT of $30 million. It has debt of $100 million and the cost of debt is 7%. Its unlevered cost of capital is 10% and tax rate at 35%. a) What’s its unlevered firm value? b) What’s its levered firm value? c) What’s its equity value?As the general manager of a firm, you are presented with an investment proposal from one of your divisions. Its net present value, if discounted at the cost of capital for your firm (which is 15 percent), is $ 1 00,000, and its internal rate of return is 20 percent. (a) What are the economic interpretations of the net present value and internal rate of return figures? In other words, what do they mean? (b) What, if any, additional information would you like to have before approving the project?
- Suppose the Widget Company has a capital structure composed of the following, in billions: Debt = Taka 30 million, Common equity = Taka 30 million. If the before-tax cost of debt is 9%, and the tax rate is 30%. The stock price of common share is Taka 30 in the last year the company paid a dividend of Taka 5 and it will grow at the rate of 5% for ever. What is Widget’s weighted average cost of capital? Now assume that company has a project that needs Taka 130 million and the company plans to maintain its present capital structure and needs to issue new common stocks and the flotation cost would be 15%. Using the concept of breakpoint estimate the new WACC for the company.Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 30% long-term debt, 10% preferred stock, and 60% common stock equity (retained earnings, new common�� stock, or both). The firm's tax rate is 23%. Debt : The firm can sell for $1030 a 14-year, $1,000-par-value bond paying annual interest at a 8.00% coupon rate. A flotation cost of 2% of the par value is required. Preferred stock: 9.00% (annual dividend) preferred stock having a par value of $100 can be sold for $92.An additional fee of $2 per share must be paid to the underwriters. Common stock: The firm's common stock is currently selling for $90 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.00 ten years ago to the $3.26 dividend payment, D0, that the company just recently made.…Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 30% long-term debt, 10% preferred stock, and 60% common stock equity (retained earnings, new common stock, or both). The firm's tax rate is 23%. Debt : The firm can sell for $1030 a 14-year, $1,000-par-value bond paying annual interest at a 8.00% coupon rate. A flotation cost of 2% of the par value is required. Preferred stock: 9.00% (annual dividend) preferred stock having a par value of $100 can be sold for $92.An additional fee of $2 per share must be paid to the underwriters. Common stock: The firm's common stock is currently selling for $90 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.00 ten years ago to the $3.26 dividend payment, D0, that the company just recently made.…