Question 17 Issuing stock rather than increasing debt: O all of the other answers O reduces financial risk O requires owners to give up some voting control O limits the potential rate of return to owners
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- Question 23 Which of the following is an advantage of equity financing vs debt financing? A If the company makes no profit in a year it has no legal obligation to pay a dividend. B paid to shareholders attract tax relief and so lower the company tax bill. C Equity holders can exert significant pressure of management of a company. D Equity financing can typically be used for all sizes of financing from a few hundred pounds to billions.Ch. 13. For questions 7, 8, and 9, use the following information: Consider a firm whose debt has a market value of $35 million and whose stock has a market value of $55 million. The firm pays a 7 percent rate of interest on its new debt and has a beta of 1.23. The corporate tax rate is 21%. Assume that the security market line holds, that the risk premium on the market is 10.5 percent, and that the current Treasury bill is rate is 1 percent. What is the aftertax cost of debt? Format as a percentage and round to two places past the decimal point as "X.XX"Module 6 Question 2 (Individual or component costs of capital) Compute the cost of capital for the firm for the following: a. Currently bonds with a similar credit rating and maturity as the firm's outstanding debt are selling to yield 8.00 percent while the borrowing firm's corporate tax rate is 34 percent. b. Common stock for a firm that paid a $1.05 dividend last year. The dividends are expected to grow at a rate of 5.0 percent per year into the foreseeable future. The price of this stock is now $25.00. c. A bond that has a $1,000 par value and a coupon interest rate of 12.0 percent with interest paid semiannually. A new issue would sell for $1,150 per bond and mature in 20 years. The firm's tax rate is 34 percent. d. A preferred stock paying a dividend of 7.0 percent on a $100 par value. If a new issue is offered, the shares would sell for $85.00 per share. a. The after-tax cost of debt debt for the firm is ________%.
- Problem 20-03 Fill in the table using the following information.Assets required for operation: $11,000Firm A uses only equity financingFirm B uses 30% debt with an 8% interest rate and 70% equityFirm C uses 50% debt with a 10% interest rate and 50% equityFirm D uses 50% preferred stock financing with a dividend rate of 10% and 50% equity financingEarnings before interest and taxes: $1,100If your answer is zero, enter "0". Round your answers for monetary values to the nearest cent. Round your answers for percentage values to one decimal place. A B C D Debt $ $ $ $ Preferred stock $ $ $ $ Common stock $ $ $ $ Earnings before interest and taxes $1,100.00 $1,100.00 $1,100.00 $1,100.00 Interest expense $ $ $ $ Earnings before taxes $ $ $ $ Taxes (40% of earnings) $ $ $ $ Preferred stock dividends $ $ $ $ Income available to common stockholders $…Ch. 13. For questions 7, 8, and 9, use the following information: 7.) Consider a firm whose debt has a market value of $35 million and whose stock has a market value of $55 million. The firm pays a 7 percent rate of interest on its new debt and has a beta of 1.23. The corporate tax rate is 21%. Assume that the security market line holds, that the risk premium on the market is 10.5 percent, and that the current Treasury bill is rate is 1 percent. What is the aftertax cost of debt? Format as a percentage and round to two places past the decimal point as "X.XX" 5.53 8.) Consider a firm whose debt has a market value of $35 million and whose stock has a market value of $55 million. The firm pays a 7 percent rate of interest on its new debt and has a beta of 1.23. The corporate tax rate is 21%. Assume that the security market line holds, that the risk premium on the market is 10.5 percent, and that the current Treasury bill is rate is 1 percent. Using the pretax cost of debt from Question…QUESTION 65 The assets of Uptown Stores are currently worth $346,000. These assets are expected to be worth either $320,000 or $365,000 one year from now. The company has a pure discount bond outstanding with a $350,000 face value and a maturity date of one year. The risk-free rate is 3.9 percent. What is the value of the equity in this firm? • $11,347 • $9,507 • $10,015 • $9.915 O $12,671
- 1. Explain FOUR(4) reasons that make money market instruments a popular investment among investors even though the return is low 2. On 1st January 2021, Howard bought a Treasury bill with RM 950. The T-bill has face value of RM1,000 and maturity day of 180 days. Calculate the annualized holding period yield if Howard sells the T-bill on24thMarch 2021 with the price of RM980 3. Elaborate THREE (3) internal factors that contributes to the price volatility of a listed company stock. 4. “When a stock is overvalued, its return is less than the required rate of return.” Is this statement true or false? Justify.Question No 01: Organization ABC Stock is traded in the Lahore Stock Exchange and has a Market Price of Rs.13. The Company has fixed the Dividend to be Rs.2 per share. The Par Value of each offer is Rs.10. You expect the Price should be Rs.13 after 2 years. As the financial specialist, you expect a Minimum Required Return of 10% because you can earn that much from a bank deposit account almost risk-free. BUT, Stocks are generally more risky investments than bank deposits SO you will only invest in risky stock IF the expected return is higher than 10% - let's say 15%. Figure the estimation of Stock Value.Question 1Firm A’s capital structure contains 20% debt and 80% equity. Firm B’s capital structurecontains 50% debt and 50% equity.Both firms pay 7% annual interest on their debt. Firm A’s shares have a beta of 1.0and Firm B’s beta of 1.375. The risk-free rate of interest equals 4%, and the expectedreturn on the market portfolio equals 12%. RequiredA. Calculate the WACC for each firm assuming there are no taxes.B. Recalculate the WACC figures assuming that the two firms face a marginaltax rate of 34%. What do you conclude about the impact of taxes from yourWACC calculations? C. Explain the simplifying assumptions managers make when using WACC asa project discounting method and discuss some of the common pitfallswhen using WACC in capital budgeting.
- Exercise 4 (it's only one question)In 2016 the company FinTech.Inc had a capital structure which is as follows: Capital structure Book value Long-term bank debt $2,000,000 Bond loan $5,000,000 Preferred shares NV=$70 $7,000,000 Ordinary actions 200,000 shares $10,000,000 Non-distributed profit $3,000,000 The annual interest rate of the bank debt is 6%, the company issued its bond loan by offering a nominal annual coupon rate pf 8%, the maturity date is scheduled in 15 years, the bond currently being exchanged on the bond market at a price of $1,260, the issuance of a new bond loan at the market price with a 15 years maturity will gnerate deductible issue costs of 3%of the nominal value of the bond.The common share is currently trading on the stock market at a price of $65, an issue of shares at market price will cost 2% of the sale price in issue costs which are tax deductible, the next dividend is estimated at $2.2 the dividend growth rate is 5%, the company only…Debt To Equity Data: 2018: 0.27x 2019: 0.23x 2020: 0.21x 2021: 0.18x 2022: 0.17x Question: which of the following transactions and events would result in a deterioration in Debt to Equity in year 2021? 1) a share buy-back 2) receiving cash for unearned sales revenue 3) the purchase of machinery financed entirely by a reducing-balance bank loan 4) A and B only 5) A and C only 6) B and C only 7) All of the above 8) None of the aboveINV 1 3a Your analysis has indicated that the shares of Levi’s Riveting Co. are highly over-valued. To take advantage of this expectation, you decide to sell short 900 shares at $20 each. The initial margin for short sales in your brokerage account is set at 60% (i.e., 160% of the value of the short sale). The minimum margin requirement is 40%. The stock will pay no dividends during the period, and you will not remove any money from the account before making the offsetting transaction. At what price would you face a margin call?
