company is estimating its optimal capital structure. Now the company has a capital structure that consists of 20% debt and 80% equity, based on market values (debt to equity D/S ratio is 0.25). The risk-free- 6%. Currently the company's cost of equity, which is based on the CAPM, is 14% and its tax rate is 20%. Find the firm's current leveraged beta using the CAPM 1.0 1.5 1.6 1.7 QUESTION 43 sed on the information from Question 42, find the firm's unleveraged beta using the Hamada Equation 0.95 1.0 1.25 1.35 QUESTION 44 sed on the information from Question 42 and 43, what would be the company's new leveraged beta if it were to change its capital structure to 50% debt and 50% equity (D/S-1.0) using the Hamada Equation 1.25 1.35 1.95 2.25

company is estimating its optimal capital structure. Now the company has a capital structure that consists of 20% debt and 80% equity, based on market values (debt to equity D/S ratio is 0.25). The risk-free- 6%. Currently the company's cost of equity, which is based on the CAPM, is 14% and its tax rate is 20%. Find the firm's current leveraged beta using the CAPM 1.0 1.5 1.6 1.7 QUESTION 43 sed on the information from Question 42, find the firm's unleveraged beta using the Hamada Equation 0.95 1.0 1.25 1.35 QUESTION 44 sed on the information from Question 42 and 43, what would be the company's new leveraged beta if it were to change its capital structure to 50% debt and 50% equity (D/S-1.0) using the Hamada Equation 1.25 1.35 1.95 2.25

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 7P

See similar textbooks

Similar questions

Q. Suppose a company uses only debt and internal equity to finance its capital budget and uses CAPM to compute its cost of equity. Company estimates that its WACC is 12%. The capital structure is 75% debt and 25% internal equity. Before tax cost of debt is 12.5 % and tax rate is 20%. Risk free rate is rRF = 6% and market risk premium (rm - rRF ) = 8%: What is the beta of the company?
42. A company is estimating its optimal capital structure. Now the company has a capital structure that consists of 20% debt and 80% equity, based on market values (debt to equity D/S ratio is 0.25). The risk-free rate (rRF) is 5% and the market risk premium (rM – rRF) is 6%. Currently the company’s cost of equity, which is based on the CAPM, is 14% and its tax rate is 20%. Find the firm’s current leveraged beta using the CAPM 1.0 1.5 1.6 1.7 Question 43 Based on the information from Question 42, find the firm’s unleveraged beta using the Hamada Equation 0.95 1.0 1.25 1.35 Question 43 Based on the information from Question 42, find the firm’s unleveraged beta using the Hamada Equation 0.95 1.0 1.25 1.35 Question 44 Based on the information from Question 42 and 43, what would be the company’s new leveraged beta if it were to change its capital…
Problem ACarbon Corporation has a policy of paying out 70% of its earnings. The growth rate of the company remains to be constant at 7%. What is the optimal capital structure for Carbon Corporation given the following capital structures applicable to the company?Debt ratio Expected EPS Cost of equity 20% P2.50 15% 40% 3.25 16% 50% 3.75 17%Show your answer in the following manner starting from the optimal capital structure, the next optimal and the least optimal, for example:"Debt ratio = 40%, XXXXXXXXXXXXDebt ratio = 20%, XXXXXXXXXXXXDebt ratio = 50%, XXXXXXXXXXXX"
A company is estimating its optimal capital structure. Now the company has a capital structure that consists of 20% debt and 80% equity, based on market values (debt to equity D/S ratio is 0.25). The risk-free rate (rRF) is 5% and the market risk premium (rM – rRF) is 6%. Currently the company’s cost of equity, which is based on the CAPM, is 14% and its tax rate is 20%. Find the firm’s current leveraged beta using the CAPM 1.0 1.5 1.6 1.7
QUESTION 4 Madiba Ltd’s optimal capital structure calls for 35% debt and 65% equity. The after-tax cost of debt is 12%; its cost of ordinary shares funding from retained earnings is 14%; and its marginal tax rate is 28%. Madiba Ltd’s has the following investment opportunities: Supersonic: Cost = R 50 000; IRR = 11.90%. Telefunken: Cost = R100 000; IRR = 13.00% LG: Cost = R150 000; IRR = 14.50%. Sony: Cost = R200 000; IRR =15.70%. Madiba expects to have a net income of R250 000 and bases its dividend payment on the residual policy. Which projects should the company choose given their calculated WACC and IRRs? Justify your answer.
QUESTION 4 Madiba Ltd’s optimal capital structure calls for 35% debt and 65% equity. The after-tax cost of debt is 12%; its cost of ordinary shares funding from retained earnings is 14%; and its marginal tax rate is 28%. Madiba Ltd’s has the following investment opportunities: Supersonic: Cost = R 50 000; IRR = 11.90%. Telefunken: Cost = R100 000; IRR = 13.00% LG: Cost = R150 000; IRR = 14.50%. Sony: Cost = R200 000; IRR =15.70%. Madiba expects to have a net income of R250 000 and bases its dividend payment on the residual policy. How much would Madiba Ltd’s pay in dividends (after accepting all profitable projects) if it were to follows the residual theory of dividends?
Please show all work on excel Cartwright Communications is considering making a change to its capital structure to reduce its cost of capital and increase firm value. Right now, Cartwright has a capital structure that consists of 20% debt and 80% equity, based on market values. (Its D/E ratio is 0.25.) The risk-free rate is 6% and the market risk premium, rM – rRF, is 5%. Currently the company's cost of equity, which is based on the CAPM, is 12% and its tax rate is 40%. A. What would be Cartwright's estimated cost of equity if it were to change its capital structure to 50% debt and 50% equity?
Subject: Financial strategy & policy Question No 4 Answer the following. iii) You have a capital structure consisting of 30% debt and 70% equity. There is an 8% yield to maturity. The risk-free rate is 5%, and the market risk premium is 6%. Using the CAPM, the cost of equity is currently 12.5%. There is 40% tax rate. (03) a) Calculate current WACC? b) Calculate the current beta on common stock? c) Calculate the beta if you had no debt in the capital structure, that is unlevered beta?
Part 1-Sayote Corporation is considering changing its capital structure in order to lower its cost of capital and raise firm value. Sayote currently has a capital structure that is 20 percent debt and 80 percent equity based on market values. (It has a D/E ratio of 0.25.) The risk-free rate is 7%, and the business risk premium is 5%. The company's current cost of equity, calculated using the CAPM, is 14%, and its tax rate is 35%. What will Sayote's estimated cost of equity be if it changed its capital structure to 50% debt and 50% equity? Compute for the new levered beta using the new capital structure. * Your answer
Part 1-Sayote Corporation is considering changing its capital structure in order to lower its cost of capital and raise firm value. Sayote currently has a capital structure that is 20 percent debt and 80 percent equity based on market values. (Ilt has a D/E ratio of 0.25.) The risk-free rate is 7%, and the business risk premium is 5%. The company's current cost of equity, calculated using the CAPM, is 14%, and its tax rate is 35%. What will Sayote's estimated cost of equity be if it changed its capital structure to 50% debt and 50% equity? Compute for the new levered beta using the new capital structure. * Your answer Part 2 (Continuation) Sayote Corporation is considering changing its capital structure in order to lower its cost of capital and raise firm value. Sayote currently has a capital structure that is 20 percent debt and 80 percent equity based on market values. (It has a D/E ratio of 0.25.) The risk-free rate is 7%, and the business risk premium is 5%. The company's current…
Problem 3.1. Assume CAPM. Assume that the risk-free interest rate equals 0.03 and that the market retur equals 0.08. Consider a company which currently has 2 million shares outsanding with the stock price of $20 per share. The equity rate is 0.09. The company has ten million dollars in debt with the debt beta equal to 0.4. The weighted average cost of capital is 0.0796. Calculate the capital tax rate.
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 dollar