Corporate Income tax rate45%Asset beta1.2Treasury instrument rateExpected return on market portfolio6%10%Credit spreadDebt/Value Credit rating for the debt0% AAA2%10% AA4%20% A6%30% A-8%40% BAA10%50% BBA14%60% BBB20%>60% JunkCredit not available Consider the data in this section (Section Leverage). What is the firm'scost of financing at the optimal leverage level? (select the option closestto the answer)10.8%11.05%O 12.00%10.49%10.16%O 9.21%

Given information : Corporate income tax rate 45% Asset beta 1.2 Treasury rate 6% Expected…

Answered: rate Income tax rate beta ury…

Business

Finance

rate Income tax rate beta ury instrument rate ted return on market portfolio rating for the debt Credit spre

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Related questions

Q: Which of the following is the worst measure of the cost of debt? Estimating Interest Rate based on…

A: The cost of debt is the effective return that a company pays for its debt to its debtholders. It is…

Q: Which of the following provides the best estimate of the risk-free interest rate for the CAPM…

A: CAPM is a tool or model which is used to find the possible return form the stock by considering risk…

Q: i. Using the CAPM, calculate the required return for Zambeef ii. Calculate the share Price of…

A: NOTE: As per our policy, we only answer up to three sub-questions. Therefore the first three…

Q: Justify and give your comment based on the following statements: (ii) Bond price is positively…

A: The interest rates of the bonds are change with the change in the money supply. The rate of…

Q: what is the formula for caculation the rate on long-term Treasury bonds

A: Treasury bonds are also referred to as government bonds. A government bond is a kind of debt…

Q: Some characteristics of the determinants of nominal interest rates are listed as follows. Identify…

A: The short-term riskless security rate during the period where inflation is expected to zero- real…

Q: Bond price is: O Inversely related to cOupon rate and positively related to interest rate. O…

A: Bond are fixed interest bearing instrument that is issued to raise funds and has a fixed matuity…

Q: Define coupon interest rate

A: Coupon interest rate are the rate of interest paid on the bonds. The coupon rate is charged on the…

Q: Identify some macroeconomic factors that influence interest rates and explain theeffects of each.

A: Following are the macroeconomic factors that influence interest rates: GDP An ascent in GDP will…

Q: Is the debt level that maximizes a firm’s expected EPS the same as the debt level that maximizesits…

A: Capital structure refers to the securities or debt included in the total capital of the firm.…

Q: Derive the inverse relationship between Price and Yield in debt markets using a property-based…

A: The question is based on the concept of calculating the value of debt and fixed-income security with…

Q: The measure of risk is called: Group of answer choices Beta The market rate of return The…

A: Risks are of 2 types: Systematic risk Unsystematic risk Systematic risk includes: Market risk…

Q: Differentiate between the terms expected rate of return, required rate of return, and historical…

A: The expected rate of return is the normal rate of return that the speculation can anticipate. By and…

Q: b. What is the market interest rate on Coleman's debt and its component cost of debt?

A: Given: The firm tax rate is 25% The current price of coleman’s is 12% The current price of firm is…

Q: bonds

A: Investment options are of various types. Some investments carry higher risks while some would carry…

Q: he cost of debt is the _____ of the company's bonds. yield to maturity price current yield coupon…

A: Bond has YTM, coupon rate, its price and current yield

Q: How can the yield to maturity on a firm’s outstanding debt be used to estimate itsbefore-tax cost of…

A: A yield to maturity or YTM shows the return an investor gets by holding the bond till its maturity…

Q: How is the market interest rate in the short-term and long-term financial market affected under the…

A: Introduction : In simple words, the pure expectation theory refers to the market finance theory…

Q: (Click on the following icon e in order to copy its contents into a spreadsheet.) Approximate True…

A: Approximate Real Rate = Nominal Rate - Inflation Rate True Real Rate = [ (1+Nominal rate) /…

Q: Which asset class has the highest average historical returns and also the highest risk as measured…

A: The investor should choose the investment based on her/his needs, if an investor wants to take less…

Q: The formula (Coupon Payment / Current bond price) calculates the _______. Multiple Choice

A: Following are the definitions: Current Yield = It is the annualized income (either in interest or…

Q: What is the Relationship between Changes in Interest Rates, Investor Returns, and “Going-In”Cap…

A: The question is based on the concept of relation between change in interest rate and its impact on…

Q: Compare the coupon rate and the interest rate regarding bonds. What is a par value? Describe the…

A: The coupon rate represents the fixed payments that are expected over the life of the bond. The…

Q: For the cost of equity (stock) is it better to use the current US Treasury bill rate or a…

A: For a debt commitment to be called entirely risk-free, investors must have perfect assurance that…

Q: Explain or illustrate before-tax cost of debt and after-tax cost of debt. 5. What are the…

A: The equity source and debt source of financing is considered to be important in capital structure.…

Q: The discount rate used in a net present value analysis is the ________. A. rate of interest…

A: Net present value is calculated by the deducting the present value of cash outflows from the present…

Q: 5. Discuss the determinants of interest rates. Draw the graph of a hypothetical government bonds…

A: Interest rate is the rate which we receive on the investments made by us. This interest rate always…

Q: Define each of the following terms:b. Par value; maturity date; coupon payment; coupon interest rate

A: Bond is the debt instrument issued by the borrowers to raise funds from various investors. Generally…

Q: Market capitalization • Calculate earnings per share (EPS). • Calculate the appreciation of the YTD…

A: Since there are multiple sub parts are given , but as per guidelines we only allowed to do maximum…

Q: Describe and link the following terms: a) Normal yield curve b) Term structure of interest rates c)…

A: Note : As per our guidelines, we can only answer up to three subparts at once. Please post other…

Q: Describe the likely effect on the yield to maturity of a bond resulting from:a. An increase in the…

A: Yield to maturity (YTM) implies the rate of return on the bond that is hold till the maturity from…

Q: arket valu

A: We need to compute the market value of debt for the given information.

Q: How is book value per share calculated? Explain how inflation and R&D programsmight cause book…

A: Book value per share: A book value per share takes into consideration the ratio of the common…

Q: What is the difference between lending and borrowed portfolio. How leverage can increase the…

A: The capital allocation line, also known as the capital market link, is a line drawn on a graph of…

Q: How to calculate selling price, markups, markdown, stockturn rate, and return on investment.

A: Financial Ratio: A financial ratio, or bookkeeping proportion, is the general size of two chosen…

Q: When interest rates __________, the market required rates of return ________, and the bond prices…

A: Bond is debt-instrument that is used by entities t raise debt funds from public-at-large. Bonds pay…

Q: he rate of return on which one of the following has a risk premium of 0%? Multiple Choice…

A: Risk Premium is the return offered to the investors for inducing them to invest in securities having…

Q: REQUIREMENTS: 1. How much is the cost of equity using the capital asset pricing model? 2. How…

A: Cost of Equity represents the expected return by the shareholders of the company.It can be…

Q: Evaluate the American bond yield curve below. Utilising an adequate theoretical lens, explain what…

A: The price of the bonds are affected by two interest rate; 1) Stated interest rate (coupon rate), and…

Q: Market value ratios try to answer what question for potential investors? Do financial statements…

A: An investor is any person or other organisation (such as a company or mutual fund) that invests…

Q: how Will long term bonds effect current ratio, acid test ratio, and debt to equity ratio? how will…

A: As the student has posted multiple questions and not mentioned which questions to be answered, the…

Q: What is expectations theory of the term structure of interest rates? Group of answer choices a.…

A: There are three theories based on term structure of interest rate namely Expectation theory, Market…

Question

Corporate Income tax rate
45%
Asset beta
1.2
Treasury instrument rate
Expected return on market portfolio
6%
10%
Credit spread
Debt/Value Credit rating for the debt
0% AAA
2%
10% AA
4%
20% A
6%
30% A-
8%
40% BAA
10%
50% BBA
14%
60% BBB
20%
>60% Junk
Credit not available

Consider the data in this section (Section Leverage). What is the firm's
cost of financing at the optimal leverage level? (select the option closest
to the answer)
10.8%
11.05%
O 12.00%
10.49%
10.16%
O 9.21%

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 with 2 images

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

Question 1. WACC Cost of Debt After-tax cost of debt 4.90% Cost of Equity Treasury Bond Rate (risk free rate) 5% Beta 0.48 Risk premium 7% Years 2014 2015 2016 2017 Capital Structure Debt 22% 25% 28% 27% Equity 78% 75% 72% 73% Please calculate following for each of the year from 2014 to 2017 Cost of Debt (before tax) Cost of Equity WACC (Weighted Average Cost of Capital)
A3) Finance From the information below, select the capital structure that results in the lowest WACC for Humungo Sportainment Industries. Rd below is after tax. a. Debt = 0%; Equity = 100%; Stock Price = $16.00; Rd = 6.60% b. Debt = 20%; Equity = 80%; Stock Price = $16.25; Rd = 7.00% c. Debt = 40%; Equity = 60%; Stock Price = $16.50; Rd = 7.60% d. Debt = 50%; Equity = 50%; Stock Price = $16.75; Rd = 8.40% e. Debt = 60%; Equity = 40%; Stock Price = $16.00; Rd = 9.40%
Calculate WACC from following data. Risk free rate 1.63% total debt $78.93 billion Market Cap $2580 billion Beta 0.86 Corporate Bond rate 3.10% CAPM S&P historical return 5.90% Tax Rate 21% please show steps
Q40 If the company’s Earnings before interest and taxes (EBIT) is OMR 500,000, the weighted average cost of capital is 12.5%, and the market value of the equity is OMR 1,000,000; then what is the value of Debt under Net Operating Income Approach? a. OMR 4,000,000 b. OMR 6,000,000 c. OMR 3,000,000 d. OMR 5,000,000
Xena Corp. Total Assets $21,249 Interest-Bearing Debt (market value) $11,070 Average borrowing rate for debt 10.20% Common Equity: Book Value $5,535 Market Value $23,247 Marginal Income Tax Rate 19% Market Beta 1.64 Using the information from the table, and assuming that the risk-free rate is 4.5% and the market risk premium is 6.2%, calculate Xena's weighted-average cost of capital:
Financials of X Ltd are as follows. 10% Debt 6500; Current Market Price 80.21; Equity Beta 1.25; Equity Capital (Rs 10) 1900; Market Risk Premium 6; PAT 1235; Retained Earnings 4100; Risk Free Return 7%; Tax 35%. Find market value added. a. Rs 9329.30 b. Rs 9932.90 c. Rs 9239.90 d. Rs 9329.90
Assume the following data for U&P Company: Debt (D) = $100 million; Equity (E) = $300 million; rD = 6%; rE = 12%; and TC = 30%. Calculate the after-tax weighted average cost of capital (WACC): Multiple Choice A) 10.5% B) 10.05% C) 15% D) 9.45%
Year 0 1 Revenue 600.00 Fixed costs 100.00 Variable costs 200.00 Additional investment in NWC 10.00 Additional investment in operating long-term assets 70.00 Depreciation 60.00 Interest expenses 35.00 Newly issued debt 25.00 Principle repayments 15.00 Tax rate 0.40 Market value of the firm: Price per share No. of shares Market value Short-term debt 100.00 Long-term debt 600.00 Preferred stock 10.00 10 100.00 Common stock, equity 18.00 100 1,800.00 Total 2,600.00 Cost of equity (Rs) 0.1500 Growth rate per year from year 1 through year 5 0.10 Growth rate after year 5 0.07 What is the price per share according to the equity free cash flow model? Select one: a. $18.29 b. $10.98 c. $15.51 d. $20.87 e. $12.33
Company X has debt and equity as source of funds..Company X has market value of debt as $ 150000 and a book value of debt as $ 80000. The company has book value of equity as $ 100000 and market value of equity as $ 125000. The cost of debt is 8.25% and cost of equity is 9.57%. The tax rate is 38%. What is WACC?
Qno3 M/s. Lucky Cement Company Limited has levered beta of 1.35 at 35% debt level. Risk free rate in market is 9% and investor required 5% risk premium to invest in market. Tax rate of company is 35%. Following is the schedule of borrowing rate obtained from bank for different level of debt level in capital structure. Firm anticipating Rs. 200,000 Operating Profit (EBIT). DEBT RATE 0 0.1 0.1 0.1 0.2 0.105 0.3 0.11 0.35 0.12 0.45 0.14 0.55 0.16 Find Optimal Capital Structure of M/s. Lucky Cement Company Limited.
Selected ratios formulars Unilever 2021 BOPP 2021 ROCE PBIT / net assets * 100 (32,424/39,406 *100 = - 82% 102,154 / 192,758 *100 =53% Net Assets Turnover Revenue / Net Assets 526,912 / 39,406 = 13 times 214,174 / 192,758 = 1 time Gross Profit Margin Gross profit / revenue *100 97,046 / 526,912 *100 18.4% 115,462 / 214,174 * 100 54% Net Profit Before Tax PBT / revenue * 100 (35,005) / 526,912* 100 = -6.6% 104,778 / 214,174* 100 =48.9% Current Ratio Current assets / current liabilities 214,665/341,171 = 0.5 139,104 / 30,368 = 4.5 Quick Ratio Current assets – inventory / current liabilities 214,665-91,627 /341,171 = 0.4 139,104 -13,248/ 30,368 = 4.1 Inventory Days Inventory / cost of sales * 365 days 91,627/ 429,866 *365 = 77 days 13,248 / 101,397 *365 = 47 days Receivable Days Receivables / cost of sales * 365 days 24,515 / 429,866 *365 =20 days 92,860 / 101,397 *365 =334 days Payable Days…
Company Name Total Debt Ratio Levered Equity Beta Marginal Tax Rate Revenues ($ Mill) Priv-Held Automotive 65.00% ? 40.00% Ford Motor Company 85.98% 1.07 7.59% 157,978 Fiat Chrysler America 74.29% 2.18 11.95% 108,018 General Motors 81.18% 1.42 3.47% 144,010 1. Calculate the unlevered asset betas for each of the three comparable firms being sure to adjust appropriately for their respective marginal tax rates 2. Calculate the arithmetic industry average of the three asset betas 3. Calculate the weighted average asset beta using the revenues to determine the weights 4. Estimate a levered equity beta for the Privately-Held Automotive division for both the arithmetic and the weighted averages. 5. Write out the algebraic equation of the variance (s2) of a portfolio with three assets, A, B and C.

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS