None Cargill's Cost of Capital. Cargill is generally considered to be the largest privately held company in the world. Headquartered in Minneapolis, Minnesota, the company has been averaging salesof over $112 billion per year over the past five-year period. Although the company does not have publicly traded shares, it is still extremely important for it to calculate its weighted average cost ofcapital properly in order to make rational decisions on new investment proposals. Assuming a risk-free rate of 4.50%, an effective tax rate of 42%, and a market risk premium of 6.00%, estimatethe weighted average cost of capital first for companies A and B, and then make a "guesstimate" of what you believe a comparable WACC would be for Cargill. As shown in the popup window,, if we take the approach that the beta for Cargill has to pick up all the incremental information, the beta would then fall between say 0.80 and 1.00. If the higher degree of international saleswas interpreted as increasing risk, beta would be on the higher end; yet being a commodity firm in the current market, its beta would rarely surpass 1.0. Thus, an estimate of 0.93 beta for Cargillsounds reasonable.Using the CAPM, what is company A's WACC?☐ % (Round to two decimal places.)Data table(Click on the following icon in order to copy its contents into a spreadsheet.)Company salesCompany A$11 billionCompany's betaCredit rating0.82AAWeighted average cost of debt.6.860%Company B$44 billion0.71A7.120%Cargill$112 billion0.93AA6.840%Debt to total capital34%46%27%International sales/Sales11%34%54%-

WACC of company is the cost of capital and is the weighted cost of debt and weighted cost of equity…

Cargill's Cost of Capital. Cargill is generally considered to be the largest privately held company in the world. Headquartered in Minneapolis, f over $112 billion per year over the past five-year period. Although the company does not have publicly traded shares, it is still extremely impo apital properly in order to make rational decisions on new investment proposals. Assuming a risk-free rate of 4.50%, an effective tax rate of 429 he weighted average cost of capital first for companies A and B, and then make a "guesstimate" of what you believe a comparable WACC woul if we take the approach that the beta for Cargill has to pick up all the incremental information, the beta would then fall between say 0.80 an was interpreted as increasing risk, beta would be on the higher end; yet being a commodity firm in the current market, its beta would rarely surp. ounds reasonable. Using the CAPM, what is company A's WACC? ☐ % (Round to two decimal places.)

Cargill's Cost of Capital. Cargill is generally considered to be the largest privately held company in the world. Headquartered in Minneapolis, f over $112 billion per year over the past five-year period. Although the company does not have publicly traded shares, it is still extremely impo apital properly in order to make rational decisions on new investment proposals. Assuming a risk-free rate of 4.50%, an effective tax rate of 429 he weighted average cost of capital first for companies A and B, and then make a "guesstimate" of what you believe a comparable WACC woul if we take the approach that the beta for Cargill has to pick up all the incremental information, the beta would then fall between say 0.80 an was interpreted as increasing risk, beta would be on the higher end; yet being a commodity firm in the current market, its beta would rarely surp. ounds reasonable. Using the CAPM, what is company A's WACC? ☐ % (Round to two decimal places.)

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Similar questions

A firm has decided that its optimal capital structure is 100% equity-financed. It perceives its optimal dividend policy to be a 60% payout ratio. Asset turnover is sales/assets = 0.6, the profit margin is 10%, and the firm has a target growth rate of 3%. a-1. Calculate the sustainable growth rate. (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.) a-2. Is the firm’s target growth rate consistent with its other goals? b. If the firm’s target growth rate is not consistent with its other goals, what would asset turnover need to be to achieve its goals? (Do not round intermediate calculations. Round your answer to 3 decimal places.) c. If the firm’s target growth rate is not consistent with its other goals, how high would the profit margin need to be to achieve its goals? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)
Digital Timber International (DTI) is a developer of distributed data storage technologies. The profitability of DTI and its investment policy are summarized in the following table: 3 Expected earnings per share Plow-Back Ratio $26.3 0.83 0.56 0 Book Value per Share $100 Assume that without new investments, expected earnings of DTI would remain at their time-1 level in perpetuity. All investments are expected to generate a constant level of incremental earnings per year in perpetuity for each $1 of investment. For the time-1 investment, the cash flow is $0.2 per $1 invested, and for the time-2 investment, it is $0.15. For an investment made at time t, incremental cash flows are generated starting in year t + 1. The plow-back ratio will remain equal to 0 after year 3. The appropriate discount rate for all future cash flows of DTI is 11.4%. (a) Compute the expected book value per share at time 1. (b) Compute the expected earnings per share of DTI at time 2. (c) Compute the expected 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?
Ganado's Cost of Capital. Maria Gonzalez, Ganado's Chief Financial Officer, estimates the risk-free rate to be 3.30%, the company's credit risk premium is 3.60%, the domestic beta is estimated at 0.94, the international beta is estimated at 0.61, and the company's capital structure is now 75% debt. The expected rate of return on the market portfolio held by a well-diversified domestic investor is 9.80% and the expected return on a larger globally integrated equity market portfolio is 8.60%. The before-tax cost of debt estimated by observing the current yield on Ganado's outstanding bonds combined with bank debt is 7.60% and the company's effective tax rate is 42%. For both the domestic CAPM and ICAPM, calculate the following: a. Ganado's cost of equity b. Ganado's after-tax cost of debt c. Ganado's weighted average cost of capital a. Using the domestic CAPM, what is Ganado's cost of equity? % (Round to two decimal places.)
Netglobe Ltd is a well established company providing telecommunications services. An analyst has collected the following information and wants to estimate the enterprise value of Netglobe using the discounted free cash flow (FCF) model: ● ● ● . . The cost of equity is 15%. The cost of debt is 6%. • The weighted average cost of capital is 10%. Using the discounted free cash flow model and the information above, the the enterprise value of Netglobe is $ million. Note: Please provide your answer with two decimal points in $ million the format of xx.xx (for example, if the answer is $12.34 million, type in 12.34). Netglobe's FCF was $16 million in year 0 (historical FCF in the year just passed). Netglobe expects its FCF to grow by 5% per year for the next three years (in year 1, year 2 and year 3). Netglobe expects its FCF to grow by 3% per year indefinitely thereafter. Assume all cash flows occur at the end of the year. ● 4
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.…
Calculation of individual costs and WACC 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: 35% long-term debt, 10% preferred stock, and 55% common stock equity (retained earnings, new common stock, or both). The firm's tax rate is 22%. Debt The firm can sell for $1010 a 14-year, $1,000-par-value bond paying annual interest at a 9.00% coupon rate. A flotation cost of 4% of the par value is required. Preferred stock 8.00% (annual dividend) preferred stock having a par value of $100 can be sold for $94. An additional fee of $6 per share must be paid to the underwriters. Common stock The firm's common stock is currently selling for $70 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.50 ten years ago to the $4.48 dividend payment, Do, that the company just recently…
Calculation of individual costs and WACC 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, 15% preferred stock, and 55% common stock equity (retained earnings, new common stock, or both). The firm's tax rate is 22%. Debt The firm can sell for $1015 a 10-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 8.50% (annual dividend) preferred stock having a par value of $100 can be sold for $96. An additional fee of $4 per share must be paid to the underwriters. Common stock The firm's common stock is currently selling for $60 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.70 ten years ago to the $5.07 dividend payment,…
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: 35% long-term debt, 20% preferred stock, and 45% common stock equity (retained earnings, new common stock, or both). The firm's tax rate is 21%. Debt The firm can sell for $1030 a 13-year, $1,000-par-value bond paying annual interest at a 7.00% coupon rate. A flotation cost of 2% of the par value is required. Preferred stock 8.5% (annual dividend) preferred stock having a par value of $100 can be sold for $90. An additional fee of $4 per share must be paid to the underwriters. Common stock The firm's common stock is currently selling for $60 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.75 ten years ago to the $5.41 dividend payment, D0, that the company just recently made. If the…
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: 35% long-term debt, 20% preferred stock, and 45% common stock equity (retained earnings, new common stock, or both). The firm's tax rate is 21%. Debt The firm can sell for $1030 a 13-year, $1,000-par-value bond paying annual interest at a 7.00% coupon rate. A flotation cost of 2% of the par value is required. Preferred stock 8.5% (annual dividend) preferred stock having a par value of $100 can be sold for $90. An additional fee of $4 per share must be paid to the underwriters. Common stock The firm's common stock is currently selling for $60 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.75 ten years ago to the $5.41 dividend payment, D0, that the company just recently made. If the…
Calculation of individual costs and WACC 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: 40% long-term debt, 10% preferred stock, and 50% common stock equity (retained earings, new common stock, or both). The firm's tax rate is 24%. Debt The firm can sell for $1000 a 11-year, $1,000-par-value bond paying annual interest at a 12.00% coupon rate. A flotation cost of 4% of the par value is required. Preferred stock 8.50% (annual dividend) preferred stock having a par value of $100 can be sold for $98. An additional fee of $3 per share must be paid to the underwriters. Common stock The firm's common stock is currently selling for $80 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.25 ten years ago to the $4.43 dividend payment, Do. that the company just recently…

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS