Silver Inc. will be registering with SEC. Its incorporators was able to gather the following cost of long-term financing sources depending on forecasted debt ratios. Under the optimal decision, what would be the minimum return (in pesos) for the coming year if an incorporator invests P50,000 at the start of the year? Cost of Debt Cost of Equity Debt Ratio 0.00% 0.00% 10.00% 20.00% 4.90% 11.75% 40.00% 5.50% 13.25% 60.00% 5.40% 17.50% 80.00% 5.80% 29.75%
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What is the Minimum return in pesos
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- Brower Co. is considering the following alternative financing plans: Income tax is estimated at 40% of income. Determine the earnings per share of common stock, assuming that income before bond interest and income tax is 2,000,000.You have the following initial information on Financeur Co. on which to base your calculationsand discussion for questions 2):• Current long-term and target debt-equity ratio (D:E) = 1:3• Corporate tax rate (TC) = 30%• Expected Inflation = 1.55%• Equity beta (E) = 1.6325• Debt beta (D) = 0.203• Expected market premium (rM – rF) = 6.00%• Risk-free rate (rF) =2.05%2) Assume now a firm that is an existing customer of Financeur Co. is considering a buyoutof Financeur Co. to allow them to integrate production activities. The potential acquiringfirm’s management has approached an investment bank for advice. The bank believesthat the firm can gear Financeur Co. to a higher level, given that its existing managementhas been highly conservative in its use of debt. It also notes that the customer’s firm hasthe same cost of debt as that of Financeur Co. Thus, it has suggested use of a target debtequity ratio of 2:3 when undertaking valuation calculations.a) What would the required rate of return…You have the following initial information on Financeur Co. on which to base your calculations and discussion for question 2): • Current long-term and target debt-equity ratio (D:E) = 1:3 • Corporate tax rate (TC) = 30% • Expected Inflation = 1.55% • Equity beta (E) = 1.6325 • Debt beta (D) = 0.203 • Expected market premium (rM – rF) = 6.00% • Risk-free rate (rF) =2.05% 2) Assume now a firm that is an existing customer of Financeur Co. is considering a buyout of Financeur Co. to allow them to integrate production activities. The potential acquiring firm’s management has approached an investment bank for advice. The bank believes that the firm can gear Financeur Co. to a higher level, given that its existing management has been highly conservative in its use of debt. It also notes that the customer’s firm has the same cost of debt as that of Financeur Co. Thus, it has suggested use of a target debtequity ratio of 2:3 when undertaking valuation calculations. a) What would the required…
- You have the following initial information on Financeur Co. on which to base your calculationsand discussion for questions 1) and 2):• Current long-term and target debt-equity ratio (D:E) = 1:3• Corporate tax rate (TC) = 30%• Expected Inflation = 1.55%• Equity beta (E) = 1.6325• Debt beta (D) = 0.203• Expected market premium (rM – rF) = 6.00%• Risk-free rate (rF) =2.05%1) The CEO of Financeur Co., for which you are CFO, has requested that you evaluate apotential investment in a new project. The proposed project requires an initial outlay of$7.25 billion. Once completed (1 year from initial outlay) it will provide a real net cashflow of $556 million in perpetuity following its completion. It has the same business riskas Financeur Co.’s existing activities and will be funded using the firm’s current target D:Eratio.a) What is the nominal weighted-average cost of capital (WACC) for this project?b) As CFO, do you recommend investment in this project? Justify your answer(numerically).You have the following initial information on CMR Co. on which to base your calculationsand discussion for questions 1) and 2):• Current long-term and target debt-equity ratio (D:E) = 1:4• Corporate tax rate (TC) = 30%• Expected Inflation = 1.75%• Equity beta (E) = 1.6385• Debt beta (D) = 0.2055• Expected market premium (rM – rF) = 6.00%• Risk-free rate (rF) = 2.15%1) The CEO of CMR Co., for which you are CFO, has requested that you evaluate apotential investment in a new project. The proposed project requires an initial outlay of$7.15 billion. Once completed (1 year from initial outlay) it will provide a real net cashflow of $575 million in perpetuity following its completion. It has the same business riskas CMR Co.’s existing activities and will be funded using the firm’s current target D:Eratio.a) What is the nominal weighted-average cost of capital (WACC) for this project?You have the following initial information on CMR Co. on which to base your calculations and discussion for questions 1) and 2):• Current long-term and target debt-equity ratio (D:E) = 1:4• Corporate tax rate (TC) = 30%• Expected Inflation = 1.75%• Equity beta (E) = 1.6385• Debt beta (D) = 0.2055• Expected market premium (rM – rF) = 6.00%• Risk-free rate (rF) = 2.15% 1) The CEO of CMR Co., for which you are CFO, has requested that you evaluate a potential investment in a new project. The proposed project requires an initial outlay of $7.15 billion. Once completed (1 year from initial outlay) it will provide a real net cash flow of $575 million in perpetuity following its completion. It has the same business risk as CMR Co.’s existing activities and will be funded using the firm’s current target D:E ratio. a) What is the nominal weighted-average cost of capital (WACC) for this project?b) As CFO, do you recommend investment in this project? Justify your answer (numerically). Assume now…
- Waller, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 8 years to maturity twith a current price of $1042. The issue makes semiannual payments and has coupon rate of 8 percent. If the tax rate is 0.21, what is the pretax cost of debt? Enter the answer with 4 decimals (e.g. 0.0123)Bulldogs Inc. uses Additional Funds Needed as a plug item. If the company had forecast its additional financing needed to be 2,340,000, its capital budget at 3,600,000, and net income at 1,800,000, what is its retention ratio?Put percentage sign (XX%) The following are methods of acquiring funds through long-term financing, except Selling equity securities with a characteristic of both debt and equity security Issuing bonds with semi-annual coupon payment at a discounted price Issuing a note that indicates a promise to pay the indicated supplier in a future date Selling equity securities at an amount above the par value indicated in the stock certificateSuppose that Mr. Dubinski has obtained from Blaine’s banker the quotes (the one in the template, ignore the one provided in the case) for default spreads over 10-year Treasury bonds. What do these quotes imply about BKI’s cost of debt at the various debt levels and credit ratings? Compute BKI’s weighted average cost of capital at each of the indicated debt levels. What do your calculations imply about Blaine’s optimal capital structure?
- Doha plc has some surplus funds that it wishes to invest in bonds. The company requires a return of 15% on bonds, and the finance director has asked you to analyse whether it should invest in either of the following bonds that are available:Company A: Expected profit 12% bonds, redeemable at par at the end of two more years, with a current market value of QAR 95 per QAR 100 bondCompany B: Expected profit 8% bonds, redeemable at QAR110 at the end of two more years, with a current market value of QAR 95 per QAR 100 bonda. Calculate the expected value (price) of the two bonds and evaluate if either offer an appropriate return for Doha Plc.b. Critically evaluate what would be the impact on the price of bonds if Doha Plc reduces their required return.c. Critically evaluate and discuss the factors that should be considered by the directors of a company when choosing whether to use debt or equity finance for a new projectd. Recently one director has attended a finance conference, on their…Percentages need to be entered in decimal format, for instance 3% would be entered as .03. Ezzell Enterprises has the following capital structure, which it considers to be optimal under present and forecasted conditions: Debt (long-term only) ratio - 45% Common equity - 55% Total liabilities and equity - 100% For the coming year, management expects after-tax earning of $2.5 million. Ezzell's past dividend policy of paying out 60% of earnings will continue. Present commitments from its bankers will allow Ezzell to borrow according to the following schedule: Loan Amount Interest Rate $1 to $500,000 9% on this increment of debt $500,001 to $900,000 11% on this increment of debt $900,001 and above 13% on this increment of debt The company's marginal tax rate is 40%, the current market price of its stock is $22 per share, its last dividend was $2.20 per share, and the expected growth rate is 5%. External equity (new common) can be sold at a flotation cost of 10%.…Alpha Corporation has average annual free cashflows to the equity holder and to the firmof P3,000,000 and P3,350,000 respectively. Assuming that the weighted average cost ofcapital and actual return of on assets is 16.75% while the market return on Alpha's debt is7%, what is the value of its equity? a. P34,358,974.36 b.P15,000,000.00 c.P17,910,447.76 d.P20,000,000.00