Phil's Carvings Inc wants to have a weighted average cost of capital of 9.8 percent. The firm has an after- tax cost of debt of 6.6 percent and a cost of equity of 13.2 percent. What debt-equity ratio is needed for the firm to achieve their targeted weighted average cost of capital?
Q: Ahmad bought put options on Verizon with a striking price of $32. The option premium was $2.50. Just…
A: A put option gives the holder right to sell the asset under the option at a predetermined price at…
Q: Compute the interest paid on a 4-year lease for a $28,842 car if the annual rate of depreciation is…
A: A lease refers to an agreement between two parties known as lessor and the lessee where , the lessor…
Q: Real Property/Land ownership includes air rights and subsurface materials. Group of answer choices…
A: “Since you have asked multiple questions, we will solve the first question for you. If you want…
Q: As the number of stocks in a portfolio increase, the portfolio’s systematic risk can either increase…
A: Solution: When an investor invests in equity market, it get exposed to two types of risk- a)…
Q: Question 2 (Consumption Capital Asset Pricing Model (CCAPM)) In the theory of CCAPM, aggregate…
A: The consumption capital asset pricing model (CCAPM) is an extension of the capital asset pricing…
Q: Assume the CAPM holds. You are holding a portfolio with the beta of 2 and the standard deviation of…
A: We have an inefficient portfolio here. We have to make it efficient and find out the possibility of…
Q: 5. Which statement about replacing individual life insurance policies is true? Oa. Replacement is…
A: Several statement have been provided about the replacement of an individual life insurance policy.…
Q: puts, calls, and the underlying stock (or combination). For each investor, document the (1) name of…
A: You meet with two investors who have different expectations for stock CBD that can be addressed with…
Q: Q2. Lamar Company is considering two projects A and B with the same initial i $10,000The following…
A: Payback period is the one of the simple methods to calculate the initial investment and do not…
Q: K Suppose that the price p (in dollars) and the weekly sales x (in thousands of units) of a certain…
A: The demand and the price of a commodity are negatively correlated as the buyer has a fixed budget.…
Q: Premier, Incorporated, has an odd dividend policy. The company has just paid a dividend of $4 per…
A: Dividend discounting model is a method of finding out the current value of securities after…
Q: TRUE OR FALSE 1. The effective rate of interest is the amount of money that one unit invested at…
A: The answers to the statement are below :
Q: What quarterly deposits should Daniella make in order to save $50,000 in 15 years if money can earn…
A: The Future Value of Ordinary Annuity refers to the concept which determines the sum total of all the…
Q: The Dry Dock is considering a project with an initial cost of $108,915 and cash inflows for Years 1…
A: IRR of the project is calculated in excel using IRR function
Q: Assume that the initial outlay and depreciable base for a new project is 100,000. It is a 3 year…
A: The company generally accepts project that has positive NPV. The positive NPV shows the project will…
Q: Assume the historical volatility of a stock on the S&P 500 is 50% and the correlation between the…
A: We have the historical volatility and the covariance. We have to find the average variance, average…
Q: Your employer offers a401(k)plan with a45%match, and you set a goal of retiring in 27 years with an…
A: 401(k): It is a profit-sharing plan allowing employees to contribute a part of their salary to…
Q: The share price of a company reflects the market's opinion about the company. Which of the following…
A: The share prices of company will be derived through the market consensus and interaction of demand…
Q: The capital structure of a company is composed of debt and equity as follows. Given the following…
A: Given: Stock price = $85 Growth rate = 3% Expected dividend = $4
Q: Assume you can purchase a 3 bedroom rental townhome for 350,000. The down payment required is 15%.…
A: Net Present Value The difference between the profit and cost generated by a particular project or…
Q: Assume that time today is Dec. 13, 2022. Determine what is being asked in each problem. 1. How much…
A:
Q: Stocks A, B and C have a monthly return and variance of: (10%, 0.0036), (15%, 0.0009) and (3%,…
A:
Q: Explain how the portfolio approach to investment allows the reduction of risk and why Beta therefore…
A: Risk The chance of loss in investment is known as risk. There are no investments without risk. Risk…
Q: 5. A bank claims in an advertisement that its certificates of deposit offe a nominal rate of 7.0%…
A: The effective interest rate is the interest rate considering the impact of the compounding effect on…
Q: Waste Management (WM) just paid a $3.14 dividend, and it is expected to grow at 6.25% for the next 4…
A: Given: Just paid dividend = $3.14 Growth rate = 6.25% Constant growth rate = 4.26% Required rate =…
Q: Orange Corporation has a standard deviation of 25% and an expected return of 10 percent. Violet…
A: Standard deviation of portfolio is calculated using following equation Standard deviation =…
Q: Residual Distribution Model Kendra Brown is analyzing the capital requirements for Reynold…
A: “Since you have posted question with multiple sub- parts ,the first three sub-parts have been solved…
Q: Is this statement true/ false? Why is it? "As the fixed rate receiver in an interest rate swap…
A: Interest rate swaps are a popular financial instrument which allow two parties to exchange interest…
Q: currently
A: 1. Hedging through Forward 2. Believing in the advice of the Financial Controller. 3. Money Market…
Q: A. greater liquidity. B. greater specialization. C. higher correlations with other asset classes.…
A: Alternative investments are those investments that are different from traditional investments in…
Q: An investor is considering the development of a recreational complex with the following relevant…
A: We have the quantum and timing of all the cash flows emanating from a venture. We have to find the…
Q: Lloyd is chronically ill and received the tax-qualified long-term care insurance benefits in 2022…
A: An individual received the tax-qualified long-term care insurance benefits. Based on the rules and…
Q: Suppose you have $30000 to invest. The interest rate is 8% compounded continuously. How much can you…
A: The amount that can be withdrawn after 20 years is calculated using following equation Value at the…
Q: Blackstone, Inc. is currently an all-equity firm that has 65,000 shares of stock outstanding at a…
A: Share Repurchase: Share repurchase (also known as buy-back) refers to the decision of the firm to…
Q: requirements
A: These are the following- 1. Such risks must be statistically predictable- This is one of the major…
Q: You have entered into a 4/7 FRA at a rate of 5.9%. There are 91 days in the FRA period. After three…
A: We need to find the current value of the FRA. For that we need to know the interest rate valid in…
Q: Consider a loan of $1,000 for five years with 10% add-on interest and the loan is to be paid off in…
A: Internal rate of return is rate of return where present value of cash outflows is equal to present…
Q: Howden is interested in purchasing a jet ski for $15 834. He chose to finance this purchase across a…
A: Interest payment refers to the amount that is being paid with the principal amount in exchange for…
Q: An investment had a nominal return of 11.8 percent last year. If the real return on the investment…
A: Nominal rate = 11.8% Real rate = 8.7%
Q: Ay 3. Draft a corporate constitution for your family convenient store
A: A corporate constitution is a document that outlines the rules and regulations governing a…
Q: Which one of the following is a use of cash? Group of answer choices (A).payment to a supplier…
A: Solution:- Use of cash means outflow of cash by the firm.
Q: Use simple interest to calculate the cash price of the following bond: 5,000 USD, 8% bond with…
A: Cash price of bonds = Face value of bonds * Purchase price (%)
Q: Consider a 20-year mortgage for $299,847 at an annual interest rate of 4.4%. After 7 years, the…
A: A mortgage is a covered loan that has been provided to purchase or maintain a property. The property…
Q: accumulated $975,000 in his RRSP at the age of 55. Converted the RRSP into an RRIF at the time and…
A: Retirement planning is very important stage in the financial planning and there is need of proper…
Q: Which of the following types of insurance does NOT involve a contract with an external party? a.…
A: Introduction Insurance is a form of risk management that helps to protect individuals and businesses…
Q: Sally earns gross wages of $1200 per week. She has standard deductions for social security and…
A: The employee contributes to the retirement account to support the financial needs after retirement,…
Q: Sarah later sent an email to Winston: “Winston, please, don’t kill my project.” She then asked the…
A: Net Present Value is a profitability measure to determine the present value of the project. This is…
Q: So-called "payday loans" are targeted primarily at "poor people" O True O False QUESTION 43 Term…
A: Pay-day loans are short-term loans that allow the person to borrow until the next payday. The…
Q: National automotive supply, a major distributor, sells merchandise to Alex Motors. The invoice is…
A: The company makes cash sales as well as sales on account. The company offers cash discounts to…
Q: Regular contributions of $200 are made at the end of each month for five years into a savings…
A: An annuity is the stream of equal periodic cash flows over specific time period. Annuity can be two…
Phil's Carvings Inc wants to have a weighted average cost of capital of 9.8 percent. The firm has an after- tax cost of debt of 6.6 percent and a
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
- Phil's Carvings, Inc. wants to have a weighted average cost of capital of 9%. The firm has an after-tax cost of debt of 5% and a cost of equity of 11%. What debt-equity ratio is needed for the firm to achieve its targeted weighted average cost of capital?The Kanucks Ltd wants to have a weighted average cost of capital of 11 .25%. The firm has an after-tax cost of debt of 5% and a cost of equity of 13 %. What debt-equity ratio is needed for the firm to achieve the targeted weighted average cost of capital? Multiple Choice0.250.220.280.330.42Ilumina Corp is trying to determine its optimal capital structure. The company’s capital structure consists of debt and common stock. In order to estimate the cost of debt, the company has produced the following table: Percent financed with debt (wd) Percent financed with equity (wc) Debt-to-equity ratio (D/S) After-tax cost of debt (%) 0.25 0.75 0.25/0.75 = 0.33 6.9% 0.35 0.65 0.35/0.65 = 0.5385 7.1% 0.50 0.50 0.50/0.50 = 1.00 8.0% The company uses the CAPM to estimate its cost of common equity, rs. The risk-free rate is 5% and the market risk premium is 6%. Ilumina estimates that its beta with 10% debt is 1. The company’s tax rate, T, is 40%. On the basis of this information, what is the company’s optimal capital structure, and what is the firm’s cost of capital at this optimal capital structure? (Please show work)
- Here is the problem: Famas's LLamas has a weighted average cost of capital of 7.9%. The company's cost of equity is 11% and its pretaxt cost of debt is 5.8%. The taxt rate is 25%. What is the company's target debt-equity ratio? Here is the solution: Here we have the WACC and need to find the debt-equity ratio of the company. Setting up the WACC equation, we find: WACC = .0790 = .11(E/V) + .058(D/V)(1 – .25) Rearranging the equation, we find: .0790(V/E) = .11 + .058(.75)(D/E) Now we must realize that the V/E is just the equity multiplier, which is equal to: V/E = 1 + D/E .0790(D/E + 1) = .11 + .0435(D/E) Now we can solve for D/E as: .0355(D/E) = .031 D/E = .8732 Question: I need help especifically with the part where they rearrange the equation as: .0790(V/E) = .11 + .058(.75)(D/E). How do they get an inverse (V/E) on the left side without the .11. And how do they get a (D/E) ratio. I understand…Aaron Athletics is trying to determine its optimal capital structure. The company’s capital structure consists of debt and common equity. In order to estimate the cost of capital at various debt levels the company has constructed the following table: Percent financed with debt (wD) Percent financed with equity (ws) Before tax cost of debt 0.10 0.90 7.0% 0.20 0.80 7.2% 0.30 0.70 8.0% 0.40 0.60 8.8% 0.50 0.50 9.6% The company uses the CAPM to estimate its cost of equity, rS . The risk-free rate is 4% and the market risk premium is 5%. Aaron estimates that if it had no debt its beta would be 1.0. (It’s unlevered beta equals 1.0). The company’s tax rate is 40%. On the basis of this information, what is the company’s optimal capital structure, and what is the WACC at that capital structure? (Show your calculations at each debt level).Give typing answer with explanation and conclusion Fama's Llamas has a weighted average cost of capital of 11.5 per cent. The company's cost of equity is 16 per cent, and its cost of debt is 8.5 per cent. The tax rate is 35 per cent. What is Fama's debt–equity ratio?
- .Scanlon Inc.'s CFO hired you as a consultant to help her estimate the cost of capital. You have been provided with the following data: rRF = 4.10%; RPM = 5.25%; and b = 0.70. Based on the CAPM approach, what is the cost of equity?8.4 Richmond Clinic has obtained the following estimates for its costs of debt and equity at various capital structures: Debt (%) After-Tax Cost of Debt (%) Cost of Equity (%) 0 — 16.0 20 6.6 17.0 40 7.8 19.0 60 10.2 22.0 80 14.0 27.0 What is the firm’s optimal capital structure? (Hint: Calculate its corporate cost of capital at each structure. Also, note that data on component costs at alternative capital structures are not reliable in real-world situations)The Beta Corporation has an optimal debt ratio of 40 percent. Its cost of equity capital is 12 percent, and its before-tax borrowing rate is 10 percent. Given a marginal tax rate of 35 percent. Required: a. Calculate the weighted-average cost of capital. b. Calculate the cost of equity for an equivalent all-equity financed firm. Complete this question by entering your answers in the tabs below. Required A dA Required B Calculate the weighted-average cost of capital. Note: Do not round intermediate calculations. Round your answer as a percent rounded to 2 decimal places. Weighted-average cost of capital
- A firm has two components in its capital structure, debt and equity. The after-tax cost of debt is 3% and the cost of equity is 11%. The proportion of equity in the capital structure is 75%. What is the firm's Weighted Average Cost of Capital? Select one: a. 9.47% b. 8.78% c. 9.00% d. 8.37%Calculate the Weighted Average Cost of Capital (WACC) for McCormick and Company using the formula WACC = (WD x RD x (1-T)) + (WS x Rs) Note that -- Rs = the cost of equity Rd = the cost of debt T = the tax rate WD = Value of debt / (Value of debt plus value of equity) WS = Value of equity / (Value of debt plus value of equity) **Note that the weight of debt plus the weight of equity must total to 100%, as there are only two components in the capital structure.** In order to estimate the weights of debt and equity in the total capital structure, the CFO suggests using the book value of debt and the market value of equity. To determine the book value of debt, use data from the year end November 2019 McCormick 10-K. Look on the Balance sheet and add the following -- Short term borrowings, Current portion of long term debt, and Long term debt. To determine the market value of equity, use the following data: On March 17, 2020 the market value of equity (or "Market Cap")…Company ABC is looking to figure out its cost of equity. The company operates in the construction business where, based on a list of comparable firms, the average beta is 0.9. The comparable firms have an average debt-to-equity ratio of 0.5. Company ABC has a debt-to-equity ratio of 0.25 and a 30% tax rate. What is the ABC's Beta? O a. 0.67 O b. 0.9 OC 0.79 O d. 0.25