Wentworth Industries is 100 percent equity financed. Its current beta is 0.6. The expected market rate of return is 17 percent and the risk-free rate is 9 percent. Round your answers to two decimal places. Calculate Wentworth’s cost of equity. If Wentworth changes its capital structure to 20 percent debt, it estimates that its beta will increase to 0.8. The after-tax cost of debt will be 9 percent. Should Wentworth make the capital structure change? Based on the weighted cost of capital of %, the capital structure changed.
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Hello. I need help with the following question please.
Wentworth Industries is 100 percent equity financed. Its current beta is 0.6. The expected market rate of return is 17 percent and the risk-free rate is 9 percent. Round your answers to two decimal places.
-
Calculate Wentworth’s
cost of equity . -
If Wentworth changes its capital structure to 20 percent debt, it estimates that its beta will increase to 0.8. The after-tax cost of debt will be 9 percent. Should Wentworth make the capital structure change?
Based on the weighted cost of capital of %, the capital structure changed.
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- Simon Software Co. is trying to estimate its optimal capital structure. Right now, Simon has a capital structure that consists of 20 percent debt and 80 percent equity, based on market values. (Its D/S ratio is 0.25.) The risk-free rate is 6 percent and the market risk premium, rM - rRF, is 5 percent. Currently the company's cost of equity, which is based on the CAPM, is 12 percent and its tax rate is 40 percent. Find the new levered beta given the new capital structure (if it were to change its capital structure to 50 percent debt and 50 percent equity) using the Hamada equation. O 1.67 O 0.81 O 1.00 O 1.22 O 1.45You are going to value Lauryn's Doll Co. using the FCF model. After consulting various sources, you find that Lauryn's has a reported equity beta of 1.7, a debt-to-equity ratio of 0.7, and a tax rate of 20 percent. Based on this information, what is the asset beta for Lauryn's? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Lauryn's asset betaLaiba Corporation (LC) is considering a large-scale recapitalization. Currently, LC is financed with 100 percent equity. The beta on its common stock at the current level is 1.25, the risk free rate is 8 percent, the market return is 14 percent, and LIC faces a 40 percent federal-plus-state tax rate. Required: What is LIC’s current cost of equity? What is LIC’s unlevered beta? If the company wants to recapitalize its capital structure, increase its debt by 30% and 70% equity. What will be the new beta and new cost of equity if LC recapitalizes? What if the company recapitalize its capital structure to 50% debt and equity, what will be new beta and new cost of equity?
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- You are going to value Lauryn's Doll Co. using the FCF model. After consulting various sources, you find that Lauryn's has a reported equity beta of 1.5, a debt-to-equity ratio of .4, and a tax rate of 21 percent. Based on this information, what is the asset beta for Lauryn's? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Answer is complete but not entirely correct. Lauryn's asset 1.22 x betaPotter Inc. is trying to estimate its optimal capital structure. Right now, Potter Inc. has a capital structure that consists of 20 percent debt and 80 percent equity. The risk-free rate is 6 percent, and the market risk premium is 5 percent. Currently the company’s cost of equity, which is based on the CAPM, is 12 percent and its tax rate is 40 percent.What is the new levered beta given the new capital structure? a1.67 b1.039 c1.409 d1.24 What would be Potter Inc.’s estimated cost of equity if it were to change its capital structure to 50 percent debt and 50? a14.35% b30.00% c14.72% d15.60%You are going to value Lauryn's Doll Co. using the FCF model. After consulting various sources, you find that Lauryn's has a reported equity beta of 1.6, a debt-to-equity ratio of 7, and a tax rate of 21 percent. Assume a risk-free rate of 6 percent and a market risk premium of 9 percent. Lauryn's Doll Co. had EBIT last year of $54 million, which is net of a depreciation expense of $5.4 million. In addition, Lauryn's made $6.75 million in capital expenditures and increased net working capital by $2.9 million. Assume the FCF is expected to grow at a rate of 3 percent into perpetuity. What is the value of the firm? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) Firm value Given the information below for Seger Corporation, compute the expected share price at the end of 2020 using price ratio analysis. Assume that the historical (arithmetic) average growth rates will remain the same for 2020. (Do not round intermediate calculations.…