Company A has a debt to equity ratio to one. Its cost of equity is 20% and its cost of debt is 10%. Assuming a tax rate of 50%. Company A's weighted average cost of capital is? (write the process of calculation.)

Company A has a debt to equity ratio to one. Its cost of equity is 20% and its cost of debt is 10%. Assuming a tax rate of 50%. Company A's weighted average cost of capital is? (write the process of calculation.)

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter12: Balanced Scorecard And Other Performance Measures

Section: Chapter Questions

Problem 7EA: Assume Skyler Industries has debt of $4,500,000 with a cost of capital of 7.5% and equity of...

See similar textbooks

Related questions

Q: Assume a company has 10 million of total assets: the market value of equity is 8 million and market…

A: The Weighted Average Cost of Capital(WACC) refers to the financial ratio that provides the overall…

Q: A firm has total assets of $1 million and a debt ratio of 30%. Currently, it has sales of $2.5…

A: Working note:

Q: X company has an unlevered cost of capital of 11%, a cost of debt of 8%, and a tax rte of 35%. What…

A: Debt-to-Equity ratio shows the proportion of debt capital including non-current liabilities and…

Q: Calculate the weighted average cost of capital (WACC) of company ABC Inc., if: I. The company’s…

A: In the context of the given question, we are required to compute the weighted average cost of…

Q: Walther enterprises has a capital structure target of 60 percent common equity, 15 percent preferred…

A: Weight of common equity (We) = 60% Weight of preferred stock (Wp) = 15% Weight of long term debt…

Q: Mullineaux Corporation has a target capital structure of 65 percent common stock and 35 percent…

A: The weighted average cost of capital computes the weighted cost of sourcing funds from different…

Q: Weekend Warriors, Inc., has 25% debt and 75% equity in its capital structure. The firm's estimated…

A: The weighted normal expense of capital (WACC) is an estimation of a company's expense of capital…

Q: A company finances its operations with 60 percent debt and the rest using equity. The annual yield…

A: Given: Debt (D) = 60% Equity (E) = 40% Cost of debt (rd) = 4.1% Cost of equity (re) = 12.4% Tax =…

Q: Tencent Corporation has a target capital structure of 70 percent common stock,5 percent preferred…

A: The WACC reflects the weighted average cost of capital of a company. This can determined by doing…

Q: Bulldogs Inc., which is funded by debt and ordinary equity, has a debt to equity ratio of 100%. The…

A: Answer) Calculation of Applicable Tax Rate Weighted Average Cost of Capital = [(Weightage of Equity…

Q: Nike, Inc., has a debt-equity ratio of 2.3. The firm's weighted average cost of capital is 10…

A: Debt to equity ratio is 2.3, therefore, debt to total value (D/V) = 2.3/(1+2.3) = 0.696969696969697.…

Q: Keziah Textiles, Inc. has a cost of equity of 10.8 percent. The company has an aftertax cost of debt…

A: COST OF EQUITY = 10.80% AFTER TAX COST OF DEBT = 5.10% DEBT TO EQUITY RATIO = 0.80

Q: Fusion Packaging is financed with 55% equity and 45% debt. The required rate of return on its debt…

A: Weight of equity (We) = 55% Weight of debt (Wd) = 45% Cost of debt (Rd) = 4.4% Cost of equity (Re) =…

Q: Fama's Llamas has a weighted average cost of capital of 9.5 percent. The company's cost of equity is…

A: Calculation of Target Debt-Equity Ratio:The target debt-equity ratio is 0.91.Excel Spreadsheet:

Q: Fama's Llamas has a weighted average cost of capital of 10 percent. The company's cost of equity is…

A: Debt-Equity Ratio is long-term solvency ratio of company. It is calculated by dividing debt by…

Q: Petra plc. has a current and target leverage ratio of 0.8, the finance cost from loans is 16 per…

A: Weighted cost of capital: It can be defined as the rate that is paid by the company on the average…

Q: A company has 35% of its balance sheet as debt with a total amount of assets of EUR 17,000,000.If…

A: Weight of debt = 35% Weight of equity = 100% - 35% = 65%

Q: A construction company has asked its chief financial officer to measure the cost of each specific…

A: Every business firm requires capital and finance for its development, growth, and operations. Some…

Q: The Bigelow Company has a cost of equity of 12 percent, a pre-tax cost of debt of 7 percent, and a…

A: WACC (weighted average cost of capital) refers to the average cost that is paid by a company to…

Q: Using WACC, ignoring taxes, compute the cost of capital of a company with debt ratio of 0.75:1 and…

A: Debt ratio = 0.75 Equity ratio = 1-0.75 = 0.25 Debt cost = 4% Equity cost = 5%

Q: KN Stitches has debt of $26,000, a leveraged value of $78,400, a pretax cost of debt of 7.05…

A: WACC formula: WACC=WE×KE+WD×KD×1-TAXWHERE,WE=WEIGHT OF EQUITYWD=WEIGHT OF DEBTKE=COST OF…

Q: Corporation's after−tax cost of debt is

A: Given information is: Times Corporation, whose tax rate is 30%, has two sources of funds:…

Q: The cost of capital is 15%, the before-tax cost of debt is 9%, and the mar-ginal income tax rate is…

A: The cost of capital is the cost of raising funds a firm has to bear. It is the weighted average cost…

Q: Suppose that TapDance, Inc.’s capital structure features 70 percent equity, 30 percent debt, and…

A: To calculate the WACC we will use the below formula WACC = [Kd*(1-t)*Wd]+[Ke*We] Where Kd - Before…

Q: Suppose that TapDance, Inc.'s capital structure features 60 percent equity, 40 percent debt, and…

A: Equity ratio = 60% Debt ratio = 40% Cost of equity = 11% Before tax cost of debt = 6% Tax rate = 21%…

Q: Suppose the weighted average cost of capital of the Oriole Company is 10 percent. If Oriole has a…

A: WACC = 10% Debt ratio (D) = 50% Equity ratio (E) = 50% Before tax cost of debt (Rd) = 7% Tax rate…

Q: Bulldogs Inc.’s capital structure consists entirely of long-term debt and common equity. The cost of…

A: Weighted average cost of capital is the average of the various cost of capital based on the weights…

Q: Lannister Manufacturing has a target debt-equity ratio of 0.62. Its cost of equity is 18 percent,…

A: Target debt to equity = 0.62Therefore,Debt to total asset (D/V) = 0.62/1.062 =…

Q: XYZ Inc. has a target capital structure of 60% equity and 40% debt. Its cost of equity is 9% and the…

A: WACC = Weight of equity * cost of equity + Weight of debt * cost of debt

Q: Fama's Llamas has a weighted average cost of capital of 10.4 percent. The company's cost of equity…

A: By using the formula of the weighted average cost of capital, the value of debt and equity can be…

Q: P&G has the following capital structure: $2 million in debt, $5 million in preferred stock and…

A: Here, Value of the firm is 'V' Debt is 'D' Preferred stock is 'P' Equity is 'E'

Q: A company's capital structure weights are 75% equity and 25% debt. The company's cost of equity is…

A: In the given question we require to compute the firm's WACC from the below given details: Weight of…

Q: Fama's Llamas has a weighted average cost of capital of 9.7 percent. The company's cost of equity is…

Q: Grateway, Inc., has a weighted average cost of capital of 11.5 percent. Its target capital structure…

A: Given: Pre tax cost of debt =9.00%Tax rate =30%Capital structure: Equity =55%Capital structure: Debt…

Q: The market value of Glenwood's debt and equity capital totals $180 million, 80% of which is equity…

A: Financial analysts calculate a bank's return on the investment using the weighted average cost of…

Q: Weekend Warriors, Inc., has 35% debt and 65% equity in its capital structure. The firm’s estimated…

A: Weighted average cost of capital is the overall cost of capital. It is calculating by multiplying…

Q: Lamas has a weighted average cost of capital of 8.4 percent. The company's equity is II percent, and…

A: The debt Equity ratio states how much debt the company has in its capital structure. Generally the…

Q: What is the weighted average cost of capital for a corporation that finances an expansion project…

A: Hi, there, Thanks for posting the question. As per our Q&A honour code, we must answer the…

Q: The Two Dollar Store has a cost of equity of 12.3 percent, the YTM on the company's bonds is 5.8…

A: Given: Cost of equity = 12.3% YTM = 5.8% Tax rate = 39% Debt to equity = 0.58

Q: The ABCCompany has a cost of equity of 21.2 percent, a pre-tax cost of debt of 5.2percent, and a tax…

A: WACC: It is the company’s total cost of capital which is computed by giving weights to the sources…

Q: Suppose that TapDance, Inc.'s capital structure features 65 percent equity, 35 percent debt, and…

A: FORMULA OF WACC: WACC=WE×RE+WP×RP+WD×RD×1-TAX where, WE=weight of equityWD=weight of debtWP=weight…

Q: Marina Supplies has 40% debt and 60% equity in its capital structure. The firm's estimated after-tax…

A: Weighted Average Cost of Capital is the propionate cost of capital of equity and debt. The…

Q: Fama’s Llamas has a weighted average cost of capital of 8.4 percent. The company’s cost of equity is…

A: The formula used is shown:

Q: The ABC Company has a cost of equity of 21.2 percent, a pre-tax cost of debt of 5.2 percent, and a…

A: wacc=wd×rd×1-tax+we×rewhere,wd=weight of debtrd=cost of debtwe=weight of equityre=cost of equity

Q: Mullineaux Corporation has a target capital structure of 65 percent common stock and 35 percent…

A: WACC = Weight of equity * Cost of equity + Weight of debt * cost of debt * (1-tax rate)

Q: Bulldogs Inc., which is funded by debt and ordinary equity, has a debt to equity ratio of 100%. The…

A: The cost of debt is tax-deductible and hence its effective cost is different.

Q: David Ortiz Motors has a target capital structure of 40% debt and 60% equity. The yield to maturity…

A: Given: Capital structure: Debt = 40% Equity = 60% Long term debt security = 9% Tax rate = 40% WACC…

Concept explainers

Balance Sheet Regulations

A balance sheet is a financial statement that shows the position of a company's assets and liabilities on a specific date. The balance sheet is prepared after preparing the statement of profit and loss statement (income statement). The balance sheet and other financial statements differ in the sense that the balance sheet shows the financial position at any given point in time. In contrast, the other financial statements show the financial performance over a particular duration.

Question

Company A has a debt to equity ratio to one. Its cost of equity is 20% and its cost of debt is 10%. Assuming a tax rate of 50%. Company A's weighted average cost of capital is?

(write the process of calculation.)

Definition Definition Amount of return a company generally pays to its equity investors. The cost of equity represents the compensation required by the market in lieu of owning the asset firm and simultaneously bearing the risk of ownership.

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

VIEW

Step 2

VIEW

Step 3

VIEW

Step by step

Solved in 3 steps

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

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?
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.
Assume Skyler Industries has debt of $4,500,000 with a cost of capital of 7.5% and equity of $5,500,000 with a cost of capital of 10.5%. What is Skylers weighted average cost of capital?
Domanico Co., which produces and sells biking equipment, is financed as follows: Income tax is estimated at 40% of income. Determine the earnings per share of common stock, assuming that the income before bond interest and income tax is (a) 600,000, (b) 800,000, and (c) 1,200,000.
The Moore Corporation has operating income (EBIT) of 750,000. The companys depreciation expense is 200,000. Moore is 100% equity financed, and it faces a 40% tax rate. What is the companys net income? What is its net cash flow?
Company A is financed by 20% of debt and the rest of the company is financed by common equity. The company’s before-tax cost of debt is 5%, and its cost of equity is 11%. If the marginal tax rate is 30%, the company’s weighted average cost of capital (WACC) is _____.
The ABC Company has a cost of equity of 21.2 percent, a pre-tax cost of debt of 5.2 percent, and a tax rate of 30 percent. What is the firm's weighted average cost of capital if the proportion of debt is 65.6%?
The Bigelow Company has a cost of equity of 12 percent, a pre-tax cost of debt of 7 percent, and a tax rate of 35 percent. What is the firmâ€™s weighted average cost of capital if the proportion of debt is 37.5% and the proportion of equity is 62.5%?
Fama's Llamas has a weighted average cost of capital of 9.7 percent. The company's cost of equity is 12 percent, and its pretax cost of debt is 7.4 percent. The tax rate is 25 percent. What is the company's target debt-equity ratio?
Keziah Textiles, Inc. has a cost of equity of 10.8 percent. The company has an aftertax cost of debt of 5.1 percent, and the tax rate is 35 percent. If the company's debt–equity ratio is .80, what is the weighted average cost of capital?
P&G has the following capital structure: $2 million in debt, $5 million in preferred stock and $7 million in equity. If the company’s before-tax cost of debt is 6%, cost of preferred stock is 9% and cost of equity is 15%, what is weighted average cost of capital (in %) for P&G? Assume that P&G’s tax rate is 30%. WACC = ____________%
KN Stitches has debt of $26,000, a leveraged value of $78,400, a pretax cost of debt of 7.05 percent, a cost of equity of 15.3 percent, and a tax rate of 21 percent. What is the weighted average cost of capital?