Walmart (WMT) is currently all-equity financed, its equity rate of return is 15%. Walmart expects believes that if it becomes levered with a D/E ratio of 0.4, it's cost of debt will be 3.5%. What will be the new value of Walmart's cost of equity
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- A firm that is currently unlevered has WACC = rS = 10%/year. This company plans to do a recapitalization by issuing debt and repurchasing equity. After the recapitalization, the debt-to-equity (D/E) ratio will be 0.5. If the cost of debt, rD, is 6%, what will be rS after the recapitalization?You’ve collected the following information about Odyssey, Inc.:Sales =$165,000Net income = $14,800Dividends = $9,300Total debt = $68,000Total equity = $51,000What is the sustainable growth rate for the company? If it does grow at this rate, how much new borrowing will take place in the coming year, assuming a constant debt –equity ratio? What growth rate could be supported with no outside financing at all?Handmon Enterprises is currently an all-equity firm with an expected return of 10.4%, it is considering borrowing money to buy back some of its existing shores Assume perfect capital markets. Suppose Hardmon borrows to the point that its debt-equity ratio is 0.50. With this amount of debt, the debt cost of capital is 4%. What will be the expected return of equity after this transaction b. Suppose instead Hardmon borrows to the point that its debl-equity ratio is 1.50. With this amount of debt, Handmon's debt will be much riskier. As a result, the debt cost of capital will be 6%. What will be the expected retum of equity in this case? A senior manager argues that it is in the best interest of the shareholders to choose the capital structure that leads to the highest expected return for the stock. How would you respond to this a Suppose Harmon bonows to the point that its debt-equity radio is 0.50 With this amount of debt, the debt cost of capital is 4%. What will be the expected retum…
- Tomorrow Co is financed entirely by equity that is priced to offer a 14% expected return on equity. If the company repurchases 40% of equity and substitutes an equal value of debt yielding 8%, what is the expected return on equity after refinancing? (Ignore taxes and cost of financial distress.)Stevenson's Bakery is an all-equity firm that has projected perpetual EBIT of $204,000 per year. The cost of equity is 14.5 percent and the tax rate is 39 percent. The firm can borrow perpetual debt at 5.6 percent. Currently, the firm is considering converting to a debt–equity ratio of 1.14. What is the firm's levered value?Assuming a perfect world without taxes. Home Decor has a debt ratio (D/V) of 2/5. The cost of equity is 14%, the cost of debt is 8%. The firm is considering increasing its leverage to a 2/3 debt ratio. What is the firm's cost of equity after the restructure? 17% 14% 18.8% 11.6%
- If a firm now has a debt ratio of 50% but plans to finance with only 40% debt in thefuture, what should it use as wd when it calculates its WACC? Explain.XYZ Fried Chicken is trying to determine its WACC at the optimal capital structure. The firm now has only debt and equity, and estimates that it will continue to use only debt and equity in the future also. It has determined that the optimal capital structure is given by a debt-to-equity ratio of 0.5. At this ratio, its pre-tax cost of debt is 6%. It has estimated that if it had no debt, then its beta would be 1.2. Assume the risk-free rate is 2% and the market risk premium is 8%. Assume the firm? ’s tax rate is 40%. Based on this information, what is the WACC at the optimal capital structure?Ogier Incorporated currently has $800 million in sales, which are projected to grow by 10% in Year 1 and by 5% in Year 2. Its operating profitability ratio (OP) is 10%, and its capital requirement ratio (CR) is 80%? What are the projected sales in Years 1 and 2? What are the projected amounts of net operating profit after taxes (NOPAT) for Years 1 and 2? What are the projected amounts of total net operating capital (OpCap) for Years 1 and 2? What is the projected FCF for Year 2?
- Imagine a firm with one period of operations. In case of a strong economy, the FCF from operations at year 1 will be $2,800. In case of a weak economy, the FCF at year 1 will be $1,800. Both scenarios are equally likely to happen. The risk-free rate is 3% and the equity risk premium is 12% per year. Under these circumstances, if the cost of levered equity is 28%, how much debt financing does the firm use? $1,070 $960 $1,110 $1,000 O $1,040Stevenson's Bakery is an all-equity firm that has projected perpetual EBIT of $159,000 per year. The cost of equity is 11.5 percent and the tax rate is 21 percent. The firm can borrow perpetual debt at 6.3 percent. Currently, the firm is considering converting to a debt–equity ratio of .69. What is the firm's levered value? MM assumptions hold. Multiple Choice $1,185,911 $962,907 $898,696 $1,106,128 $808,826 Please answer fast i give upvoteThe FMS Corporation needs to raise investment money amounting to $40 million in new equity. The firm’s market risk is βM = 1.4, which means the firm is believed to be riskier than the market average. The risk free interest rate is 2.8% and the average market return is 9% per year. What is the cost of equity for the $40 million?