BBB Inc.'s target capital structure is 20% debt, 15% preferred, and 65% common equity. The interest rate on new debt is 5.50%, the yield on the prefered a 6.9%, the cost of tained in 1.2%,rate is 40%. The firm will not be issuing any new stock What is the WACC? Do not round your intermediate calculationsO a.6.35%Ob.5.56%Oc642%Od. 7.88%Oe4.77%

The weighted average cost of capital(WACC) is calculated using following equationWhere, wd, wp and…

BBB Inc.'s target capital structure is 20% debt, 15% preferred, and 69% common equity. The interest rate on new debt is 5.5%, the yield on the prefered 6.9%, the stafined 2 rate is 40%. The firm will not be issuing any new stock What is the WACC? Do not round your intermediate calculations 0a639% Ob.5.56% D Od.7.88% Oe477%

BBB Inc.'s target capital structure is 20% debt, 15% preferred, and 69% common equity. The interest rate on new debt is 5.5%, the yield on the prefered 6.9%, the stafined 2 rate is 40%. The firm will not be issuing any new stock What is the WACC? Do not round your intermediate calculations 0a639% Ob.5.56% D Od.7.88% Oe477%

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

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Assume a firm is financed with $7500 debt and $2500 equity. The beta of the equity is 1.1. The risk-free rate is 3%, and the equity premium is 6%. If the overall cost of capital of the firm is 8%, what is the beta of the firmʹs debt? Group of answer choices 0.28 0.14 0.92 0.74
Abacus Company has 30% debt and 70% equity. The borrowing rate is 12%. (1) If you own 5% of the stock of Abacus, what is your dollar return if the overall capitalization rate, Ko, is 20%? (2) What is the implied required rate of return on equity if the total value of the firm is 1,500,000? Select one: a. None of the other three answers b. Dollar return=246000. c. Dollar return3D12300. d. Dollar return=54000.
6. Company cost of capital (S9.2) Nero Violins has the following capital structure: Total Market Value ($ millions) $100 Security Debt Preferred stock Common stock Beta 0 0.20 1.20 40 299 a. What is the firm's asset beta? (Hint: What is the beta of a portfolio of all the firm's securities?) b. Assume that the CAPM is correct. What discount rate should Nero set for investments that expand the scale of its operations without changing its asset beta? Assume a risk-free interest rate of 5% and a market risk premium of 6%. Ignore taxes.
Alpha Corporation has average annual free cashflows to the equity holder and to the firmof P3,000,000 and P3,350,000 respectively. Assuming that the weighted average cost ofcapital and actual return of on assets is 16.75% while the market return on Alpha's debt is7%, what is the value of its equity? a. P34,358,974.36 b.P15,000,000.00 c.P17,910,447.76 d.P20,000,000.00
Kroncke Company, whose target capital structure is 50% debt, 11% preferred, and 39% common equity. The after-tax cost of debt is 4.50%, the cost of preferred is 6.50%, and the cost of retained earnings is 14.00 % . The firm will not be issuing any new stock. What is its WACC? a. 7.75% b. 8.43% c. 8.33% d. 9.05%
Use the following information to compute the weighted average cost of capital (WACC) of GoGo Inc. ▪ Debt information: The beta of GoGo Inc. stock is 1.5 . Risk-free rate is 4% • Market return is 15% • GoGo's capital structure is 65% equity and 35% debt. The tax rate is 21%. 14.62% Bonds will mature in 9 years. The maturity value is $1,000. GoGo's WACC is.. 15.47% The coupon rate is 8%, with semiannual payments. The current bond price is $1,015. 12.20% 13.32%
Tysseland company's present market value capital structure shwon below is optimal. There is no short-term debt. Capiatal Component: Market Value Debt 30,000,000 Common Equity 90,000,000 Bonds have an 8% coupon rate, and they will be sold at par. Common stock is currently selling at $30 a share. The stockholder's required rate of return is estimated to be 12%, consisting of a dividend yield of 4% and an expected growth rate of 8%. (The next expected dividend is $1.20, so the dividend yield is $1.20/$30 = 4%.) The marginal tax rate is 30%. What is Tysseland;s WACC?
Evans Technology has the following capital structure. Debt Common equity 30% 70 The aftertax cost of debt is 7.50 percent, and the cost of common equity (in the form of retained earnings) is 14.50 percent. a. What is the firm's weighted average cost of capital? Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places. Debt Common equity Weighted average cost of capital Weighted Cost % 0.00 % Q Search An outside consultant has suggested that because debt is cheaper than equity, the firm should switch to a capital structure that is 50 percent debt and 50 percent equity. Under this new and more debt-oriented arrangement, the aftertax cost of debt is 8.50 percent, and the cost of common equity (in the form of retained earnings) is 16.50 percent. b. Recalculate the firm's weighted average cost of capital. O Che
An unlevered firm has expected earnings of $4,780,000 and a market value of equity of $56,478,000. The firm is planning to issue $22,591,200 of debt at 5.1 percent interest and use the proceeds to repurchase shares at their current market value. Ignore taxes. What will be the cost of equity after the repurchase? 10.71% 10.58% 10.45% 10.32% 10.19%
Consider a simple firm that has the following market-value balance sheet: Assets Liabilities end equity $1 040 Debt Equity $400 640 Next year, there are two possible values for its assets, each equally likely: $1 180 and $960. Its debt will be due with 4.9% interest. Because all of the cash flows from the assets must go to either the debt or the equity, if you hold a portfolio of the debt and equity in the same proportions as the firm's capital structure, your portfolio should earn exactly the expected return on the firm's assets. Show that a portfolio invested 38% in the firm's debt and 62% in its equity will have the same expected return as the assets of the firm. That is, show that the firm's pre-tax WACC is the same as the expected return on its assets. If the assets will be worth $1 180 in one year, the expected return on assets will be %. (Round to one decimal place.)
An all equity firm has a return on assets (ROA) of 14.20 percent The firm makes the decision to replace 30% of its equity with debt that has a before-lax cost of 8 percent (the firm's tax rate is 40 percent). Calculate the firm's new ROE after the debt has been issued and equity has been repurchased (hint: leverage effect and tax shield effect). O 17.66% O 18.51% 17.94% O 17.37% 18.23%
Suppose that AXA currently has no debt and has an equity cost of capital of 12%. AXA is considering borrowing funds at a cost of 6% and using these funds to repurchase existing shares of stock. Assume perfect capital markets. If AXA borrows until it achieved a debt‐to‐equity ratio of 1/2, then AXAʹs levered cost of equity would be closest to: A. 18.0% B. 6.0% C. 15.0% D. 10.0%

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