Please explain the steps clearly 71. Kline Construction is an all-equity firm that has projected perpetual earnings beforeinterest and taxes of $879,000. The current cost of equity is 18.3 percent and the tax rate is 34percent. The company is in the process of issuing $6.2 million of 8.5 percent annual couponbonds at par. What is the levered value of the firm?

in this we have to find out value of equity and than find out value of unlevered firms.

Answered: percent. The company is in the process…

percent. The company is in the process of issuing $6.2 million of 8.5 percent annual coupon honda ot Whet ic louorod voluo

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter17: Dynamic Capital Structures And Corporate Valuation

Section: Chapter Questions

Problem 2P

See similar textbooks

Related questions

Q: The company owner contributes 100,000, which is invested in a twenty-year bond with a 5% coupon paid…

A: The accounting treatment for each category is as follows: Note: Initial recognition is done on a…

Q: S. ALAM group financed using the following weights: 35% long term debt, 15% preferred stock and 40%…

A: Long Term Weights = 35% Preferred stock Weights = 15% Common Stock Equity Weights = 40% Retained…

Q: Calculate the current yield and the yield to maturity

A: Excel Spreadsheet:

Q: Shifa LLC has 2000000 shares at the current market price of OMR 3.570 each. It also has OMR 1000000…

A: The weighted average cost of capital is the cost of raising capital from the various sources of…

Q: C. XY Ltd has bonds outstanding with 7 years left before maturity. The bonds are currently selling…

A: Yield to maturity refers to the internal rate of return which is earned by the investor who makes…

Q: The market risk premium for FCIB is 9 percent, and has a tax rate of 35 percent. The risk-free rate…

A: Capital Structure: It refers to the mix or proportion of different securities such as bonds, equity,…

Q: Ronjeff Corporation sold P50 million of P1,000 par value, 12% coupon bonds. The bonds were sold at a…

A: Given info sold 50 million coupon bonds coupon rate = 12% after discount sold at = P985 per bond.…

Q: CG Forest and Paper LTD. raises capital; by selling 5,000,000 worth of debt with flotation xost…

A: Yield to maturity: It can be defined as the aggregated return estimated on a bond if the bond is…

Q: annual interest payment

A: Amount of finance required P1.5 million Interest rate on debt 16% Preference dividend rate 12%…

Q: Rollins Corporation is constructing its MCC schedule. Its target capital structure is 20 percent…

A: In this question we require to calculate the Rollins' component cost of debt. We use cost of debt…

Q: SLMA Corp. for the last ten years, has earned and had cash flows of about P600,000 every year. As…

A: Solution Given Cash flows every year 600000 Expenses every year 500000 Treasury bond…

Q: The 8 percent annual coupon bonds of the ABC Co. are selling for $1,080.69. The bonds mature in 10…

A: cost of debt /YTM formula: YTM=coupon+par-pricenpar +price2 where, n=years to maturity

Q: On 1 july 2018 BMw ltd issues $2 million in 10 year debentures that pay interest each six months at…

A: 1)

Q: EDC will be issuing preference shares with a total face value of P120,000,000 for a net proceed of…

A: Dividend on Preference shares = Face value * Dividend % = P120,000,000 * 8% = P9600000

Q: DQ, Inc. expects EBIT to be approximately $11.4 million per year for the foreseeable future, and it…

A: EBIT - $11.40 million Bond :no of bonds- 20,000 Interest rate -10% Face value - $1000 Annual…

Q: The market risk premium for FCIB is 9 percent, and has a tax rate of 35 percent. The risk-free rate…

A: Weighted Average overall cost of capital of the firm under which the cost related to all sources of…

Q: DMC currently has 100,000 shares of common stock outstanding with a market price of $50 per share.…

A: Hey, since there are multiple subpart questions posted, we will answer the first three questions. If…

Q: Housing and Development Board (HDB) Ltd also currently sells corporate bonds to investors for…

A: Bonds are debt instruments. They are issued by entities and the issuing entities have to pay…

Q: The market risk premium for FCIB is 9 percent, and has a tax rate of 35 percent. The risk-free rate…

A: Market Value = Number of share/bonds outstanding x Market Value per share/bond Following table shows…

Q: Rappaport Industries has 6,250 perpetual bonds outstanding with a face value of $2,000 each. The…

A: Calculating the value of interest tax shield. We have,Interest payment per year = Face Value of bond…

Q: Consolidated Enterprises issues €10 million face value, fi ve-year bonds with a couponrate of 6.5…

A: Given information: Face value of bond issues at 10 million euros Bond life is 5 years Market…

Q: ST1. Scherr Enterprises has a series of 8 percent coupon bonds outstanding with a $1,000 par value.…

A: Using excel rate function to calculate the YTM of the bond After tax cost of debt = YTM *(1-tax…

Q: d. If the company can issue $1,000-par-value, 12% coupon, 11-year bonds that can be sold for $1,180…

A: Cost of Debt: It represents the cost of raising capital for the issuer from the investors. The debt…

Q: S.ALAM group financed using the following weights: 35% long term debt, 15% preferred stock and 40%…

A: Long Term Weights = 35% Preferred stock Weights = 15% Common Stock Equity Weights = 40% Retained…

Q: KatyDid Clothes has a $150 million (face value) 30-year bond issue selling for 104 percent of par…

A: Cost of debt is yield to maturity on the bond and yield is calculated using rate function in excel

Q: The market risk premium for FCIB is 9 percent, and has a tax rate of 35 percent. The risk-free rate…

A: Q3. We need to compute market value of capital structure if the company and then discount rate to…

Q: Panther enterprise finances its projects with 40 percent debt, 10 percent preferred stock, and 50…

A: The weighted average cost of capital is what the company pays for financing its assets. It is…

Q: atyDid Clothes has a $170 million (face value) 20-year bond issue selling for 104 percent of par…

A: Yield to maturity(YTM) is the rate of return that investor will get if hold bond till maturity and…

Q: Company B has $50 million of bonds outstanding (face value). These are 10-year bonds, and they are…

A: The cost of raising the funds through borrowing or the financing cost is termed as the required rate…

Q: S.ALAM group financed using the following weights: 35% long term debt, 15% preferred stock and 40%…

A: Long Term Weights = 35% Preferred stock Weights = 15% Common Stock Equity Weights = 40% Retained…

Q: The market risk premium for FCIB is 9 percent, and has a tax rate of 35 percent. The risk-free rate…

A: WACC=ke*we+kp*wp+kd*wd kd=(I+(F-P)/n)/((F+P)/2) I Periodic coupon amount(1-tax rate) F…

Q: s ALAM group financed using the following weights: 35% long term debt, 15% preferred stock and 40%…

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

Q: Frozen Food Bhd has issued a bond with par value of RM1,000, a coupon rate of 9 percent that is paid…

A: We’ll answer the first question since the exact one wasn’t specified. Please submit a new question…

Q: A firm raises capital by selling $18,000 worth of debt with flotation costs equal to 3% of its par…

A: Yield to maturity (YTM), indicates the amount that an investor can earn at the bonds' maturity.

Q: Kaiser industries have bonds on the market annual payment with 14 years to maturity and selling for…

A: Following details are given in the question: Current price (Present value) = $1382.01 Assume Par…

Q: Given the following information for Watson Power Co., find the WACC. Assume the company tax rate is…

A: The weighted average cost of capital (WACC) is cost of capital of a firm calculated as…

Q: The market risk premium for FCIB is 9 percent, and has a tax rate of 35 percent. The risk-free rate…

A: Market risk premium (Rm - Rf) = 9% Risk free rate (Rf) = 5% Tax rate (T) = 35% Common stock price =…

Q: A company has its debt structured as a single zero-coupon bond that matures in 5 years. The face…

A: Current Market' value of equity- = S*N(d1)-K.e^-rt*N(d2) = $36000000*(0.7092)- $40000000.…

Q: A company has its debt structured as a single zero-coupon bond that matures in 5 years. The face…

A: Hi, since you have posted a question with multiple sub-parts, I will answer the first three as per…

Q: The market risk premium for FCIB is 9 percent, and has a tax rate of 35 percent. The risk-fr rate of…

A: Q3. We need to calculate market value of willow woods capital structure and rate for discounting…

Q: Loran Chalices Inc. hired you as a consultant to estimate the company's WACC. You have obtained the…

A: Before tax cost of debt: Cost of debt is 8.30189%

Q: S.ALAM group financed using the following weights: 35% long term debt, 15% preferred stock and 40%…

A: Long Term Weights = 35% Preferred stock Weights = 15% Common Stock Equity Weights = 40% Retained…

Q: Bonds of TLM Corporation with a par value of R1000 sell for R960, mature in five years, and have a…

A: YTM or Yield-to-Maturity shows annual return that a Bond will generate if it is retained till…

Q: Company owner contributes 100,000, which is invested in a twenty-year bond with a 5% coupon paid…

A: Accounting treatment for the different types of investments: Investment held for trading will be…

Q: The 9 percent annual coupon bonds of the Jamesway Co. are selling for $1,008.20. The bonds have a…

A: The cost of raising the funds through borrowing or the financing cost is termed as the required rate…

Q: One-year estimates suggest that Mulligan Manufacturing (MM) has a 20% probability of being worth…

A: The cost of equity seems to be the return required by a firm to determine if an investment fulfills…

Q: SLMA Corp. for the last ten years, has earned and had cash flows of about P600,000 every year. As…

A: Shareholders are the owners of the share of the company. They participate in the important business…

Question

Please explain the steps clearly

71. Kline Construction is an all-equity firm that has projected perpetual earnings before
interest and taxes of $879,000. The current cost of equity is 18.3 percent and the tax rate is 34
percent. The company is in the process of issuing $6.2 million of 8.5 percent annual coupon
bonds at par. What is the levered value of the firm?

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

Bayani Bakerys most recent FCF was 48 million; the FCF is expected to grow at a constant rate of 6%. The firms WACC is 12%, and it has 15 million shares of common stock outstanding. The firm has 30 million in short-term investments, which it plans to liquidate and distribute to common shareholders via a stock repurchase; the firm has no other nonoperating assets. It has 368 million in debt and 60 million in preferred stock. a. What is the value of operations? b. Immediately prior to the repurchase, what is the intrinsic value of equity? c. Immediately prior to the repurchase, what is the intrinsic stock price? d. How many shares will be repurchased? How many shares will remain after the repurchase? e. Immediately after the repurchase, what is the intrinsic value of equity? The intrinsic stock price?
Houston Tools has expected earnings before interest and taxes of $236,800, an unlevered cost of capital of 12.65 percent, and a tax rate of 35 percent. The company has $420,000 of debt that carries a 7 percent coupon. The debt is selling at par value. What is the value of this firm?
Houston Tools has expected earnings before interest and taxes of $189,400, an unlevered cost of capital of 12.87 percent, and a tax rate of 34 percent. The company has $318,000 of debt that carries a coupon rate of 6.2 percent. The debt is selling at par value. What is the value of this firm?
Kline Construction is an all-equity firm that has projected perpetual earnings before interest and taxes of $879,000. The current cost of equity is 18.3 percent and the tax rate is 34 percent. The company is in the process of issuing $6.2 million of 8.5 percent annual coupon bonds at par. What is the levered value of the firm? A- $5,278,164 B- $5,541,085 C- $6,422,225 D- $6,713,185 E- $7,385,695
Kline Construction is an all-equity firm that has projected perpetual EBIT of $308,000. The current cost of equity is 12 percent and the tax rate is 34 percent. The company is in the process of issuing $924,000 worth of perpetual bonds with an annual coupon rate of 6.2 percent at par. What is the value of the levered firm?
Ornaments, Inc., is an all-equity firm with a total market value of $608,000 and 26,200 shares of stock outstanding. Management believes the earnings before interest and taxes (EBIT) will be $88,850 if the economy is normal. If there is a recession, EBIT will be 24 percent lower, and if there is a boom, EBIT will be 35 percent higher. The tax rate is 35 percent. What is the EPS in a recession? Round to two places past the decimal point and format as "X.XX"
Pastel Interiors is currently an all-equity firm that has an annual projected BIT of $136,900. The current cost of equity is 16.5% and the tax rate is 20%. The firm is considering adding $118,000 of debt with a coupon rate of 7.5% to its capital structure. The debt will be sold at par value. What is the value of the unlevered firm (pre-debt)? A $763,570 B $663.758 C $730,133 (D) $696,945 ) $630,570