Please help me to answer completely the Requirement a, b, & c. Thank you! P4-3. As an Analyst, you were tasked to compute for the Weighted AverageCost of Capital of various companies given the following information.Income Tax rate is 25%.СоW Corp A Corp. Corp.4.00%1.25СаCorp.3.50%Risk Free rateBetaMarket ReturnDebt to Equity ratioCredit Spread (inBPS)3.00%2.00%1.501.301.4012.00%11.00%10.00%8.00%2.5343.5200300250150 . What is the cost of equity of each companies?h. What is the after tax cost of debt of each companies?* What is the WACC of each companiesCornorate Valuatore

The Cost of equity: The required rate of returns that shareholders expect from holding a company's…

Answered: a. What is the cost of equity of each…

a. What is the cost of equity of each companies? b. What is the after tax cost of debt of each companies? G. What is the WACC of each companies

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter7: Types And Costs Of Financial Capital

Section: Chapter Questions

Problem 1dM

See similar textbooks

Related questions

Q: profit of a firm if a debenture is issued at

A: A debenture is said to be issued at a premium when the price charged is more than its nominal…

Q: How can I tell if a company is financed by debt or equity?

A: here you need to know what is debt and equity debt means you're borrowing money from an outside…

Q: Which one of the following would appear on IBM’s statement of financial position

A: In accounting statement of financial position is also known as balance sheet. In a statement of…

Q: How do I determine the amount of capital a company has?

A: Capital: Capital are funds invested by investors in business. The investors invest in form of…

Q: Differentiate the tax effects of financing a company with stocks and debts. Your answer should…

A: Stock are have high cost because expectations of shareholders are very high and also there is no tax…

Q: How is the wealth of a firm’s shareholders/owners measured by? Group of answer choices a)…

A: The objective of financial management is to maximize the wealth of shareholders, that is maximize…

Q: If the after-tax cost of debt is less than the cost of equity in a fırm, which of the following…

A: The weighted average capital cost (WACC) consists of the measurement of a capital price of the…

Q: If two companies have exact same PBIT but one of them has some debt finance, would they pay same of…

A: Whether two companies who have exact same PBIT but one of them has some debt finance, would they pay…

Q: you are an investor how do you assess the financial ratios of the company? And why

A: FINANCIAL ratios are considered to be an important indicator for the companies financial stability…

Q: Which one of the following factors might cause a firm to increase the debt in its financial…

A: Interest paid on debt is a tax deductible expense, which means that while ascertaining the tax…

Q: debt service ratio measures? A. Profitability of the business B. The impact of debt funding to…

A: Debt service ratio means ratio of operating income available for debt service payments like…

Q: Are debtors calculated at selling price or finished goods price for net working capital? and why?

A: Net working capital means the difference between the current assets and current liabilities. Current…

Q: evaluate the impact of tax rate changes on a company’s fi nancial statements and ratios;

A: Changes to the income tax rate can significantly impact a company’s financial statements and the…

Q: calculate the: -after-tax cost of debt -the cost of preferred stock -the cost of equity from…

A: A combination of long-term debts and different types of stocks to raise funds for the business…

Q: If a firm’s common-size income statement shows that the earnings after tax percentage is too low,…

A: The common size statement is a statement related to performance of company with respect to base…

Q: what is the price of company stock? iS IT WORTH TO INVEST IN? EXPLAIN

A: We are given some financial ratios for 3 consecutive years for a company based on which we need to…

Q: (i) What is the net income for each company? (ii) What is the return on equity for each? (iii) What…

A: Information Provided: EBIT (Frontier) = $40 million EBIT (Metallurgy) = $45 million Tax rate = 40%…

Q: How do I calculate the price / earnings ratio, earnings per common share, and dividend payout?

A: Price/ Earnings ratio: Price Earnings ratio is the ratio of firm’s present share price to its…

Q: O Preferred equity is a separate component of WACC. O There is a tax shield on the equity dividends…

A: There is debt used in the capital structure of company debt have advantages of interest tax sheild…

Q: What is the controlling interest percentage for a business combination tax return? what does a…

A: Hey, since there are multiple questions posted, we will answer first question. If you want any…

Q: a. On the basis of the available data please, estimate the cost of equity. b. On the basis of the…

A: Cost of Equity: It is the firm's cost of raising equity funds from the investors for expanding their…

Q: id-in-capital and retained earnings: Similar? Different? What are the main categories of paid-in…

A: It is usually split into two different line items: common stock (par value) and additional paid-in…

Q: What is E&P and how is it different than a company's net income?

A: Earnings and profits (E&P) are a company's ability to pay dividends to its shareholders. Many…

Q: When computing the weighted average cost of capital, which of these are adjusted for taxes? OCost of…

A: WACC or weighted average cost of Capital, it determines the cost associated with each part of…

Q: a. What is the company's total book value of debt? b. The total market value? c. What is your best…

Q: What is the net income for this firm?

A: Net Income is revenue excluding all expenses of the firm

Q: Which of the following statements is CORRECT? Group of answer choices When calculating the cost…

A: Preferred stock Dividends are not liable to tax- Hence the option is not correct. An increase in…

Q: What is the company's dividend policy

A: Dividend is some portion of company’s profit that the shareholders get for investing their money in…

Q: he level of financial risk to which a firm is exposed is dependent on the firm's: (a) tax rate (b)…

A: Financial risk can be defined as the risk of availing of finance and not being able to return it. It…

Q: What is income statement in business finance

A: One of financial statements of company & shows company’s revenues & expenses during…

Q: Which of the following is a Profitability Ratio a. Proprietary Ratio b. Debt-Equity Ratio c.…

A: The profitability ratio determines the ability of an entity to generate profits as a result of…

Q: Discuss why the after-tax cost of equity (common or preferred) does not have to be adjusted by the…

A: Equity shareholders are considered as owners of the company and amount invested by equity…

Q: The average of a firms cost of equity and after tax cost of debt that is weighted based on the firms…

A: Weighted average cost of capital: The weighted average cost of capital is defined as the expected…

Q: Why do the companies in high tax brackets incur lower after-tax interest costs by financing through…

A: Debts are the liability issued by the company to raise funds. The debt holder receives fixed…

Q: How does Net Proft Margin, ROA, and ROE determine a firm's financial profitability?

A: Financial profitability refers to that financial situation of a company in which its revenues are…

Q: How do a company’s investment opportunities, capital structure,and working capital policies affect…

A: Shareholders are the subscribers of the firm’s capital. They are the owners of the company. A…

Q: Show the DuPont framework’s calculation of the three components of return on shareholders’ equity.…

A: DuPont framework: DuPont framework is an equation, which provides a convenient basis for analysis…

Q: cost

A: Cost of debt: The term cost of debt can be define as the rate of interest that is paid by the…

Q: Which of the following is CORRECT? Select one: a. When calculating the cost of debt, a company needs…

A: From the given statement we have to find the correct once: 1) When the cost of debt is calculated,…

Q: Which of the following will increase the WACC for a tax-paying company? Decrease the proportion of…

A: WACC or the weighted average cost of capital implies for the cost incurred for raising the total…

Q: For which capital component must you make a tax adjustment when calculating a firm's weighted…

A: This question is multiple choice question. We need to select the correct option among three options…

Q: Is the tax expense of a firm in its financial statements same as the company tax rate times of a…

A: Tax expense is the total of all the taxes that a company is responsible to pay to the authorities.…

Question

Please help me to answer completely the Requirement a, b, & c. Thank you!

P4-3. As an Analyst, you were tasked to compute for the Weighted Average
Cost of Capital of various companies given the following information.
Income Tax rate is 25%.
Со
W Corp A Corp. Corp.
4.00%
1.25
Са
Corp.
3.50%
Risk Free rate
Beta
Market Return
Debt to Equity ratio
Credit Spread (in
BPS)
3.00%
2.00%
1.50
1.30
1.40
12.00%
11.00%
10.00%
8.00%
2.5
3
4
3.5
200
300
250
150

. What is the cost of equity of each companies?
h. What is the after tax cost of debt of each companies?
* What is the WACC of each companies
Cornorate Valuatore

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

Step 2

Step 3

Step 4

Step 5

Step 6

Step by step

Solved in 6 steps with 7 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Brower Co. is considering the following alternative financing plans: Income tax is estimated at 40% of income. Determine the earnings per share of common stock, assuming that income before bond interest and income tax is 2,000,000.
Albion Inc. provided the following information for its most recent year of operations. The tax rate is 40%. Required: 1. Compute the following: (a) return on sales, (b) return on assets, (c) return on stockholders equity, (d) earnings per share, (e) price-earnings ratio, (f) dividend yield, and (g) dividend payout ratio. 2. CONCEPTUAL CONNECTION If you were considering purchasing stock in Albion, which of the above ratios would be of most interest to you? Explain.
Define each of the following terms: Weighted average cost of capital, WACC; after-tax cost of debt, rd(1 – T); after-tax cost of short-term debt, rstd(1 – T) Cost of preferred stock, rps; cost of common equity (or cost of common stock), rs Target capital structure Flotation cost, F; cost of new external common equity, re
Profitability metrics The following selected data were taken from the financial statements of The O'Malley Group Inc. for December 31, 20Y5. 20Y4. and 20Y3: No dividends on common stock were declared between 20Y3 and 20Y5. a.Determine the return on total assets, the return on stockholders' equity, and the return on common stockholders' equity Tor the years 20Y4 and 20Y5. Round to one decimal place. b. What conclusions can be drawn from these data as to the company's profitability?
Effect of transactions on current position analysis Data pertaining to the current position of Newlan Company are as follows: Instructions Compute (a) the working capital, (h) the current ratio, and (c) the quick ratio.
Twenty metrics of liquidity, solvency, and profitability The comparative financial statements of Automotive Solutions Inc. are as follows. The market price of Automotive Solutions Inc. common stock was $119.70 on December 31, 20Y8 Instructions Ratio of fixed assets to long-term liabilities
Twenty metrics of liquidity, solvency, and profitability The comparative financial statements of Automotive Solutions Inc. are as follows. The market price of Automotive Solutions Inc. common stock was $119.70 on December 31, 20Y8 Instructions Ratio of liabilities to stockholder.' equity
Twenty metrics of liquidity, solvency, and profitability The comparative financial statements of Automotive Solutions Inc. are as follows. The market price of Automotive Solutions Inc. common stock was $119.70 on December 31, 20Y8 Instructions Return on common stockholders’ equity
Assume Plainfield Manufacturing has debt of $6,500,000 with a cost of capital of 9.5% and equity of $4,500,000 with a cost of capital of 11.5%. What is Tylers weighted average cost of capital?
Twenty metrics of liquidity, solvency, and profitability The comparative financial statements of Automotive Solutions Inc. are as follows. The market price of Automotive Solutions Inc. common stock was $119.70 on December 31, 20Y8 Instructions Dividends per share of common stock
Twenty metrics of liquidity, solvency, and profitability The comparative financial statements of Automotive Solutions Inc. are as follows. The market price of Automotive Solutions Inc. common stock was $119.70 on December 31, 20Y8 Instructions Return on stockholders’ equity
You are considering two possible companies for investment purposes. The following data is available for each company. Additional Information: Company A: Bad debt estimation percentage using the income statement method is 6%, and the balance sheet method is 10%. The $230,000 in Other Expenses includes all company expenses except Bad Debt Expense. Company B: Bad debt estimation percentage using the income statement method is 6.5%, and the balance sheet method is 8%. The $140,000 in Other Expenses includes all company expenses except Bad Debt Expense. A. Compute the number of days sales in receivables ratio for each company for 2019 and interpret the results (round answers to nearest whole number). B. If Company A changed from the income statement method to the balance sheet method for recognizing bad debt estimation, how would that change net income in 2019? Explain (show calculations). C. If Company B changed from the balance sheet method to the income statement method for recognizing bad debt estimation, how would that change net income in 2019? Explain (show calculations). D. What benefits do each company gain by changing their method of bad debt estimation? E. Which company would you invest in and why? Provide supporting details.