Tatum can borrow at 6.85 percent. The company currently has no debtand the cost of equity is 11.25 percent. The current value of the firm is $640,000. The corporate tax rate is 24 percent. What will the value be if the company borrows $355,000 and uses the proceeds to repurchase shares?
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Tatum can borrow at 6.85 percent. The company currently has no debtand the
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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?Tatum can borrow at 7.2 percent. The company currently has no debt and the cost of equity is 11.6 percent. The current value of the firm is $675,000. The corporate tax rate is 21 percent. What will the value be if the company borrows $390,000 and uses the proceeds to repurchase shares?Bac Corp. has no debt but can borrow at 6.4 percent. The firm’s WACC is currently 10.2 percent, and the tax rate is 35 percent. (SHOW YOUR WORK) What is the company’s cost of equity? If the firm converts to 25 percent debt, what will its cost of equity be? If the firm converts to 50 percent debt, what will its cost of equity be? What is the company’s WACC in part (b)? In part (c)?
- Connor Corp. has an EBIT of $970,000 per year that is expected to continue in perpetuity. The unlevered cost of equity for the company is 12 percent, and the corporate tax rate is 21 percent. The company also has a perpetual bond issue outstanding with a market value of $1.91 million. What is the value of the company? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole dollar, e.g., 1,234,567.)the kosol co. can raise $200,000 by (1) selling 1,000 shares of common stock at $200 each or (2) selling new bonds that will net the firm $200,000 and carry an interest rate of 9 percent. Currently, the firm has $200,000 of debt at 7% and 2,000 common stock outstanding. If the firm's tax rate is 25 percent, what is the indifferent EBIT (EBIT*)?ROSE has no debt, its shareholders require a return of 10%, and EBIT of $25,000 which is paid annually in perpetuity starting in one year. JISOO is identical except it is partially financed by $40,000 of perpetual bonds with an annual coupon of 7%. The tax rate is zero. What is the cost of equity for JISOO?
- ABC Inc. borrows money at 9%, sells bonds at 8%, and the purchasers of common stock require 13% rate of return. If the company has borrowed $40 million, sold $60 million in bonds, and sold $100 million worth of common stocks, what is the Weighted Average Cost of Capital (WACC)? If the same company from the previous question used 5% ROR for loans, 9% ROR for bonds, and 12% ROR for stocks, and also used a 50% tax rate, what is the WACC?Maddux Corporation has EBIT of $725,000 per year that is expected to continue in perpetuity. The unlevered cost of equity for the company is 11 percent and the corporate tax rate is 24 percent. The company also has a perpetual bond issue outstanding with a market value of $1.6 million. What is the value of the company? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) The CFO of the company informs the company president that the value of the company is $4.9 million. Is the CFO correct?Cede & Co can borrow at 11 percent. Cede currently has no debt, and the cost of equity is 12 percent. The current value of the firm is $664,000. The corporate tax rate is 30 percent. Required: What will the value be if Cede borrows $223,000 and uses the proceeds to repurchase shares?
- Morrow Corp. has an EBIT of $875,000 per year that is expected to continue in perpetuity. The unlevered cost of equity for the company is 14 percent and the corporate tax rate is 25 percent. The company also has a perpetual bond issue outstanding with a market value of $2.3 million. What is the value of the company? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89)Farmington Company can borrow at 7.05 percent. The company currently has no debt and the cost of equity is 11.4 percent. The current value of the firm is $655,000. The corporate tax rate is 22 percent. What will the value be if the company borrows $370,000 and uses the proceeds to repurchase shares? Note: Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.McConn Manufacturing is currently all-equity financed, has an EBIT of $2 million, and has a corporate tax rate of 21 percent. Natalie, the company’s founder, is the lone shareholder. All earnings are paid out as dividends to Natalie. If the firm were to convert $4 million of equity into debt, the cost would be 10 percent and Natalie would hold all the debt. Assume Natalie pays personal taxes on interest income at a rate of 37 percent but pays taxes on dividends at a rate of 20 percent. Calculate the total cash flow to Natalie after she pays personal taxes if the firm is unlevered and if it is levered
