Chiquita Foods has a capital structure of 20% debt and 80% equity, its tax rate is 35%, and its beta (leveraged) is 1.25. Based on the Hamada equation, what would the firm's beta be if it used no debt, i.e., what is its unlevered beta? 0.98 1.03 0.82 1.08
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- El Capitan Foods has a capital structure of 40% debt and 60% equity, its tax rate is 35%, and its beta (leveraged) is 1.25. Based on the Hamada equation, what would the firm's beta be if it used no debt, i.e., what is its unlevered beta, bU?Shaw Communications is currently financed with 30% equity, 10% preferred stock, and 60% debt. It has a cost of equity capital of 11%, a cost of preferred stock of 7.5%, and its pretax cost of debt is 6%. If the firm has a tax rate of 30%, what is Shaw's weighted average cost of capital (WACC) ?Eccles Inc., a zero growth firm, has an expected EBIT of $100,000 and a corporate tax rate of 30%. Eccles uses $500,000 of 12.0% debt, and the cost of equity to an unlevered firm in the same risk class is 16.0%.Refer to the data for Eccles Incorporated. Assume that the firm's gain from leverage according to the Miller model is $126,667. If the effective personal tax rate on stock income is TS = 20%, what is the implied personal tax rate on debt income?
- Widgets Inc has an expected EBIT of $64,000 in perpetuity and a tax rate of 35 percent. The firm has$95,000 in outstanding debt at an interest rate of 8.5 percent, and its unlevered cost of capital is 15percent. What is the value of the firm according to M&M Proposition I with taxes? Should the companychange its debt–equity ratio if the goal is to maximize the value of the firm? Explain.You want to estimate the Weighted Average Cost of Capital (WACC) for Levi Inc. The company’s tax rate is 21% and it has the equity beta of 1.24. Its debt value is $2,304 million and the equity market value is $70,080 million. The company’s interest expense is $83 million. Assume that the risk-free rate is 5% and the market return is 12%. Based on the information, compute the WACC for LeviGlobex Corp. currently has a capital structure consisting of 35% debt and 65% equity. However, Globex Corp.’s CFO has suggested that the firm increase its debt ratio to 50%. The current risk-free rate is 3%, the market risk premium is 7.5%, and Globex Corp.’s beta is 1.25. If the firm’s tax rate is 25%, what will be the beta of an all-equity firm if its operations were exactly the same? Now consider the case of another company: US Robotics Inc. has a current capital structure of 30% debt and 70% equity. Its current before-tax cost of debt is 6%, and its tax rate is 25%. It currently has a levered beta of 1.25. The risk-free rate is 3%, and the risk premium on the market is 7.5%. US Robotics Inc. is considering changing its capital structure to 60% debt and 40% equity. Increasing the firm’s level of debt will cause its before-tax cost of debt to increase to 8%. First, solve for US Robotics Inc.’s unlevered beta. Use US Robotics Inc.’s unlevered beta…
- AllCity, Inc., is financed 42% with debt, 7% with preferred stock, and 51% with common stock. Its cost of debt is 5.8%, its preferred stock pays an annual dividend of $2.49 and is priced at $31. It has an equity beta of 1.18. Assume the risk-free rate is 2.4%, the market risk premium is 6.9% and AllCity's tax rate is 35%. What is its after-tax WACC? Note: Assume that the firm will always be able to utilize its full interest tax shield.AllCity, Inc., is financed 37% with debt, 11% with preferred stock, and 52% with common stock. Its pretax cost of debt is 6.3%, its preferred stock pays an annual dividend of $2.46 and is priced at $35. It has an equity beta of 1.19. Assume the risk-free rate is 1.9%, the market risk premium is 6.9% and AllCity's tax rate is 25%. What is its after-tax WACC? Note: Assume that the firm will always be able to utilize its full interest tax shieldAllCity, Inc., is financed 42% with debt, 5% with preferred stock, and 53% with common stock. Its pretax cost of debt is 5.7%, its preferred stock pays an annual dividend of $2.51 and is priced at $27. It has an equity beta of 1.11. Assume the risk-free rate is 2.2%, the market risk premium is 7.3% and AlICity's tax rate is 25%. What is its after-tax WACC? Note: Assume that the firm will always be able to utilize its full interest tax shield. The WACC is __ % ? (Round to two decimal places.)
- Vafeas Inc.'s capital structure consists of 80% debt and 20% common equity, its beta is 1.60, and its tax rate is 40%. However, the CFO thinks the company has too much debt, and he is considering moving to a capital structure with 40% debt and 60% equity. The risk-free rate is 5.0% and the market risk premium is 6.0%. By how much would the capital structure shift change the firm's cost of equity? (Just calculate the change in the cost of equity). A. -5.20% B. -6.36% C. -7.69% D. -6.99% E. -5.65%Palencia Paints Corporation has a target capital structure of 45% debt and 55% common equity, with no preferred stock. Its before-tax cost of debt is 13%, and its marginal tax rate is 40%. The current stock price is P0 = $35.00. The last dividend was D0 = $2.00, and it is expected to grow at a 4% constant rate. What is its cost of common equity and its WACC?Consider this case: Globex Corp. has a capital structure that consists of 30% debt and 70% equity. The firm’s current beta is 1.25, but management wants to understand Globex Corp.’s market risk without the effect of leverage. If Globex Corp. has a 25% tax rate, what is its unlevered beta? 0.90 0.81 1.09 0.95
