7. ABC Corp has 1.4 million shares common valued at $20 per share =$28 million. Debt has face value of $5 million and trades at 93% of face ($4.65 million) in the market. Total market value of both equity + debt thus =$32.65 million. Equity % = .8576 and Debt % = .1424 Risk free rate is 4%, risk premium -7% and ABC's B-.74 Current yield on market debt is 11%; Tax rate is 40% . Find out the Return on equity, Return on debt and WACC.

7. ABC Corp has 1.4 million shares common valued at $20 per share =$28 million. Debt has face value of $5 million and trades at 93% of face ($4.65 million) in the market. Total market value of both equity + debt thus =$32.65 million. Equity % = .8576 and Debt % = .1424 Risk free rate is 4%, risk premium -7% and ABC's B-.74 Current yield on market debt is 11%; Tax rate is 40% . Find out the Return on equity, Return on debt and WACC.

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter3: Analysis Of Financial Statements

Section: Chapter Questions

Problem 1STP

See similar textbooks

Similar questions

Suppose IWT has decided to distribute $50 million, which it presently is holding in liquid short-term investments. IWT’s value of operations is estimated to be about $1,937.5 million; it has $387.5 million in debt and zero preferred stock. As mentioned previously, IWT has 100 million shares of stock outstanding. Assume that IWT has not yet made the distribution. What is IWT’s intrinsic value of equity? What is its intrinsic stock price per share? Now suppose that IWT has just made the $50 million distribution in the form of dividends. What is IWT’s intrinsic value of equity? What is its intrinsic stock price per share? Suppose instead that IWT has just made the $50 million distribution in the form of a stock repurchase. Now what is IWT’s intrinsic value of equity? How many shares did IWT repurchase? How many shares remained outstanding after the repurchase? What is its intrinsic stock price per share after the repurchase?
ABC Corp has 1.4 million shares common with a market value of $20 per share. Its debt has a face value of $5 million and trades at 93 % of face in the market. The risk free rate is 4%, risk premium is 7% and ABC’s β=.74. Tax rate is 40% and the current yield on market debt is 11%. Find the firm’s WACC
Candyland Inc. has 400,000 shares outstanding that sell for $33 a share. It also has a current bond issuance outstanding with a market value of $5 million. The firm’s book value of debt is $7 million. The firm’s equity cost of capital is 5.0% and the YTM of its debt is 3.0%. What is Candyland’s Pre-tax WACC? A. 4.27% B. 4.45% C. 4.11% D. 4.31%
MV Corporation has debt with market value of $95 million, common equity with a book value of $101 million, and preferred stock worth $22 million outstanding. Its common equity trades at $45 per share, and the firm has 5.6 million shares outstanding. What weights should MV Corporation use in its WACC? The debt weight for the WACC calculation is 25.74% The preferred stock weight for the WACC calculation is 5.96% The common equity weight for the WACC calculation is __ % ? (Round to two decimal places.)
Book Co. has 1.7 million shares of common equity with a par (book) value of $1.45, retained earnings of $28.4 million, and its shares have a market value of $49.09 per share. It also has debt with a par value of $19.6 million that is trading at 105% of par. a. What is the market value of its equity? b. What is the market value of its debt? c. What weights should it use in computing its WACC? a. What is the market value of its equity? The market value of the equity is $ __ million (Round to two decimal places.) b. What is the market value of its debt? The market value of the debt is $ __ million. (Round to two decimal places.) c. What weights should it use in computing its WACC? The debt weight for the WACC calculation is __ % ? (Round to two decimal places.) The equity weight for the WACC calculation is __ % ? (Round to two decimal places.)