Find Total Capital: Tier 1 capital = 350 Subordinated unsecured debt, 15-year remaining maturity = 90 %3D Cumulative perpetual preferred stock = 40 ALL = 70 %3D Risk-weighted assets = 3300 Tier 2 capital = %3D Total capital =
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- RECAPITALIZATION Currently, Forever Flowers Inc. has a Capital structure consisting of 25% debt and 75% equity. Forever's debt currently has a 7% yield to maturity. The risk-free rate (rRF) is 6%and the market risk premium (rMrRF) is 7%. Using the CAPM, Forever estimates that its cost of equity is currently 14.5%. The company has a 40% tax rate. a. What is Forevers current WACC? b. What is the current beta on Forevers common stock? c What would Forever's beta be if the company had no debt in its capital structure? (That is, what is Forever's unlevered beta, buy? Forever's financial staff is considering changing its capital structure to 40% debt and 60% equity. If the company went ahead with the proposed change, the yield to maturity on the company's bonds would rise to 10.5%. The proposed change will have no effect on the companys tax rate d What would be the companys new cost of equity if it adopted the proposed change in capital structure? e. What would be the company's new WACC if it adopted the proposed change in capital structure? f. Based on your answer to part e, would you advise Forever to adopt the proposed change in capital structure? Explain.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?Compute the weighted average cost of capital given the information below. Book Value of Debt $2,500,000,000 Market Value of Debt $2,750,000,000 Book Value of Equity $3,250,000,000 Market Value of Equity $4,000,000,000 Dividend Milberg has just paid $3.25 Current stock price $40.50 Growth rate of dividends 6% Bond information Coupon rate = 4%, maturity = 20 years, maturity value =$1,000 and the current price is $985.25. Assume interest is paid semiannually. Flotation cost of equity 4% Flotation cost of debt 2% Questions 2 through 8 use the following information. Milberg Golf has decided to sell a new line of golf club. The clubs will sell for $1,100 per set and have a variable cost of 80% of revenues per set. The company has spent $450,000 for a marketing study that determined the company will sell 80,000 sets per year for seven years. The company also plans to offer a line of golf balls, which are expected to…
- Assume Meyer Corporation is 100 percent equity financed. Calculate the return on equity, given thefollowing information:Earnings before taxes 1,500Sales 5,000Dividend payout ratio 60%Total assets turnover 2Tax rate 30%Compute the weighted average cost of capital given the information below. Book Value of Debt $3,500,000,000 Market Value of Debt $3,750,000,000 Book Value of Equity $3,250,000,000 Market Value of Equity $4,250,000,000 Dividend Miberg has just paid $3.25 Current stock price $40.50 Growth rate of dividends 5% Bond information Coupon rate = 4%, maturity = 20 years, maturity value =$1,000 and the current price is $1,125. Assume interest is paid semiannually. Flotation cost of equity 3% Flotation cost of debt 2%What is the company’s cost of capital? 1. CAPM = rrf + (rm – rrf)B = required rate of return on equityr rf = risk-free rate of return = 10-year Treasury rate = 3% S&P market premium (in parenthesis) is the extra return to cover risk offered in the stock market = 5%. B = Beta of company = 1.2 2. WACC = wdrd(1-t) + were = weighted average cost of capitalWeights of debt and equity: Given debt ratio, that is, debt to total assets = 28%. Cost of debt is bond rating at high end of A average = 6%. Tax rate given 40%.
- A company has determined that its optimal capital structure consists of 40 percent debt and 60 percent equity. Given the following information, calculate the firm’s weighted average cost of capital (WACC). Assume external equity for cost of equity calculation. rd before Tax = 8% , Tax = 40% , P0 = $40, Growth = 6% , D0 = $3.00, Flotation cost = 7% of market priceCan you explain the information below market value added (MVA) analysis and interpretation of results below. Market Value of Equity:$133,341,000,000.00 Plus: Market Value of Debt:$13,677,000.00 Equals: Market Value of Firm:$133,354,677,000.00 Minus: Total Invested Capital:($1,944,100.00) Equals: MVA$133,356,621,100.00Assume Skyler Industries has debt of $4,775,777with a cost of capital of 7.8% and equity of $5,798,398 with a cost of capital of 9.6%. What is Skyler’s weighted average cost of capital for equity? Round to the nearest hundredth, two decimal places and submit the answer in a percentage.
- Weighted-Average Cost of Capital (WACC) Below is information regarding the capital structure of Micro Advantage Inc. On the basis of this information you are asked to respond to the following three questions:Required1. Micro Advantage issued a $5,000,000 par value, 20-year bond a year ago at 98 (i.e., 98% of par value)with a stated rate of 9%. Today, the bond is selling at 110 (i.e., 110% of par value). If the firm’s taxbracket is 30%, what is the current after-tax cost of this debt, rounded to 2 decimal places?2. Micro Advantage has $5,000,000 preferred stock outstanding that it sold for $24 per share. The preferred stock has a per share par value of $25 and pays a $3 dividend per year. The current market priceis $30 per share. The firm’s tax bracket is 30%. What is the after-tax cost of the preferred stock, roundedto 2 decimal places?3. In addition to the bonds and preferred stock described in requirements 1 and 2, Micro Advantage has50,000 shares of common stock outstanding that has…Given the information below. Find the Weighted Average Cost of Capital Market Value of Equity = $22,000,000; Debt = $15,000,000; Cash or Cash Equivalents = $15,000,000 iD = 0.10 or 10% iMKT = 0.17 or 17% tCorp = 0.30 or 30% bK = 1.5 IRF = 0.02 = 2%10.Bruce Wayne Communications has a capital structure that consists of 70percent common stock and 30 percent long-term debt. In order tocalculate Wayne’s weighted average cost of capital (WACC), an analysthas accumulated the following information: The company currently has 10-year bonds outstanding with annualcoupon payments of 8 percent. The bonds have a face value ofP1,000 and sell for P1,075. The risk-free rate is 5 percent. The market risk premium is 4 percent. The beta on Wayne’s common stock is 1.1. The company’s retained earnings are sufficient so that they do nothave to issue any new common stock to fund capital projects. The company’s tax rate is 40 percent. Given this information, what is Wayne’s WACC?
