General Lithograph Corporation uses no preferred stock. The firm'scapital structure uses 34% debt (hint: the rest is equity). The marginal taxrate is 28.73% and the before-tax cost of debt is 3.68%. The firm expectsto pay a dividend per share of $0.96 next year, and their dividend isexpected to grow at 5.38% over the long-run. Their stock currently tradesat $16.66 per share. What is General Lithograph's weighted average costof capital (WACC)? Enter your answer without the "%", and with two decimalplaces (in other words, if you calculate 9.87%, then just enter 9.87).8.25 margin of error +/- 0.05

To determine General Lithograph Corporation's Weighted Average Cost of Capital (WACC), we calculated…

Answered: General Lithograph Corporation uses no…

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter15: Capital Structure Decisions

Section: Chapter Questions

Problem 8P

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The Rivoli Company has no debt outstanding, and its financial position is given by the following data: What is Rivoli’s intrinsic value of operations (i.e., its unlevered value)? What is its intrinsic stock price? Its earnings per share? Rivoli is considering selling bonds and simultaneously repurchasing some of its stock. If it moves to a capital structure with 30% debt based on market values, its cost of equity, rs, will increase to 12% to reflect the increased risk. Bonds can be sold at a cost, rd, of 7%. Based on the new capital structure, what is the new weighted average cost of capital? What is the levered value of the firm? What is the amount of debt? Based on the new capital structure, what is the new stock price? What is the remaining number of shares? What is the new earnings per share?
Alto and Tenor have 15,000 shares of stock outstanding at a market price of $21 per share. The firm also has $140,000 of 6 percent bonds outstanding that are selling at par. The firm does not expect to pay taxes for the foreseeable future. The cost of equity is 14.7 percent. What is the value of RWACC?
Paradise Travels is an all-equity firm that has 9,000 shares of stock outstanding at a market price of $27 a share. Management has decided to issue $25,000 worth of debt and use the funds to repurchase shares of the outstanding stock. The interest rate on the debt will be 7.3 percent. What are the earnings per share at the break-even level of earnings before interest and taxes? Ignore taxes.
Buoyant Cruises plans to issue preferred stock with a $110 par value and a 6 percent dividend. Even though the current market value of its preferred stock is $80 per share, Buoyant expects to net only $75 for each share issued. What is its cost of issuing preferred stock? The firm's marginal tax rate is 34 percent. Show work please.
Pearson Motors has a target capital structure of 35% debt and 65% common equity, with no preferred stock. The yield to maturity on the company's outstanding bonds is 8.25%, and its tax rate is 40%. Pearson's CFO estimates that the company's WACC is 10%. What is Pearson's cost of common equity?
Kelso Electric is an all-equity firm with 43,250 shares of stock outstanding. The company is considering the issue of $295,000 in debt at an interest rate of 9 percent and using the proceeds to repurchase stock. Under the new capital structure, there would be 26,500 shares of stock outstanding. Ignore taxes. What is the break-even EBIT between the two plans?
Jace Motors has a target capital structure of 45% debt and 55% common equity, with no preferred stock. The yield to maturity on the company's outstanding bonds is 10%, and its tax rate is 25%. Jace's CFO estimates that the company's WACC is 12.00%. What is Jace's cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places.
Pearson Motors has a target capital structure of 30% debt and 70% common equity, with no preferred stock. The yield to maturity on the company's outstanding bonds is 9%, and its tax rate is 25%. Pearson's CFO estimates that the company's WACC is 11.00%. What is Pearson's cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places.
The Paulson Company’s year-end balance sheet is shown below. Its cost of common equity is 14%, its before-tax cost of debt is 10%, and its marginal tax rate is 40%. Assume that the firm’s long-term debt sells at par value. The firm’s total debt, which is the sum of the company’s short-term debt and long-term debt, equals $1,167. The firm has 576 shares of common stock outstanding that sell for $4.00 per share. Calculate Paulson’sWACC using market-value weights.AssetsCash $ 120Accounts receivable 240Inventories 360Plant and equipment, net 2,160Total assets $2,880 Liabilities and EquityAccounts payable and accruals $ 10Short-term debt 47Long-term debt 1,120Common equity 1,703Total liabilities and equity $2,880
Phil’s is a subsidiary of Greggs. The parent company - Greggs maintains a debt-equity ratio of 0.65 and has a tax rate of 32%. The pre-tax cost of debt is 9.8%. There are 25,000 shares of equity outstanding with a beta of 1.2 and a market price of £19 a share. The market has a 12.1% rate of return, and the current risk-free rate is 3.6%. This year, the firm paid an annual dividend of £1.10 a share and expects to increase that amount by 2% each year. Using an average expected cost of equity, what is Greggs’ weighted average cost of capital?

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