Unlevered Cost of EquityElliott's Cross Country TransportationServices has a capital structure with25% debt at a 10% interest rate. Itsbeta is 1.5, the risk-free rate is 4%, andthe market risk premium is 8%. Elliott'scombined federal-plus-state tax rate is25%.What is Elliott's cost of equity? Do notround intermediate calculations.Round your answer to two decimalplaces.%What is its weighted average cost ofcapital? Do not round intermediatecalculations. Round your answer totwo decimal places.%What is its unlevered cost of equity?Do not round intermediatecalculations. Round your answer totwo decimal places.%

concept. β 1. according to CAPM ( capital asset pricing model ), ke = Rf + β ( Rm - Rf) where ,…

Answered: Unlevered Cost of Equity Elliott's…

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 3P

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Hasting Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt; its beta is 1.4 (given its target capital structure). Vandell has $10.82 million in debt that trades at par and pays an 8% interest rate. Vandell’s free cash flow (FCFJ is $2 million per year and is expected to grow at a constant rate of 5% a year. Vandell pays a 40% combined federal and state tax rate. The risk-free rate of interest is 5%, and the market risk premium is 6%. Hasting’s First step is to estimate the current intrinsic value of Vandell. What are Vandell’s cost of equity and weighted average cost of capital? What is Vandell’s intrinsic value of operations? [Hint: Use the free cash flow corporate valuation model from Chapter 8.) What is the current intrinsic value of Vandell’s stock?
Bond Yield and After-Tax Cost of Debt A companys 6% coupon rate, semiannual payment, 1,000 par value bond that matures in 30 years sells at a price of 515.16. The companys federal-plus-state tax rate is 40%. What is the firms after-tax component cost of debt for purposes of calculating the WACC? (Hint: Base your answer on the nominal rate.)
The Beta Corporation has an optimal debt ratio of 40 percent. Its cost of equity capital is 11 percent and its before-tax borrowing rate is 9 percent. Given a marginal tax rate of 30 percent. a. Calculate the weighted-average cost of capital. (Do not round intermediate calculations. Round your answer as a percent rounded to 2 decimal places.)
Divided Walls Construction (DWC) has determined that the yield to maturity (YTM) on new bonds is 5 percent, its cost of retained earnings is 8 percent, and its cost of new common stock is 11 percent. If DWC’s capital structure consists of 40% debt and 60$ common equity, what is its weighted average cost of capital (WACC) if it (a) does not have to issue new stock to raise additional funds and (b) must issue new stock to raise additional funds? DWC’s marginal tax rate is 35 percent.
M&M Corporation has a WACC of 20 percent. Its cost of debt is 13 percent. If habitat’sdebt-equity ratio is 1.5, what is its cost of equity capital. Ignore taxes in your answer.
Wentworth Industries is 100 percent equity financed. Its current beta is 1.0. The expected market rate of return is 13 percent and the risk-free rate is 9 percent. Round your answers to two decimal places. Calculate Wentworth’s cost of equity. % If Wentworth changes its capital structure to 20 percent debt, it estimates that its beta will increase to 1.2. The after-tax cost of debt will be 7 percent. Should Wentworth make the capital structure change? Based on the weighted cost of capital of %, the capital structure (should be/should not be) changed.
Wentworth Industries is 100 percent equity financed. Its current beta is 1.1. The expected market rate of return is 16 percent and the risk-free rate is 11 percent. Round your answers to two decimal places. Calculate Wentworth’s cost of equity. % If Wentworth changes its capital structure to 20 percent debt, it estimates that its beta will increase to 1.3. The after-tax cost of debt will be 10 percent. Should Wentworth make the capital structure change? Based on the weighted cost of capital of %, the capital structure changed.
(please correct answer and step by step solutions) Brannan Manufacturing has a target debt - equity ratio of 45. Its cost of equity is 11.4 percent, and its cost of debt is 6.1 percent. If the tax rate is 25 percent, what is the company's WACC?
The Beta Corporation has an optimal debt ratio of 40 percent. Its cost of equity capital is 10 percent and its before-tax borrowing rate is 8 percent. Given a marginal tax rate of 35 percent. Calculate the weighted-average cost of capital. (Do not round intermediate calculations. Round your answer as a percent rounded to 2 decimal places.) Calculate the cost of equity for an equivalent all-equity financed firm. (Do not round intermediate calculations. Round your answer as a percent rounded to 2 decimal places.)
Elliott’s Cross Country Transportation Services has a capital structure with 25% debt at a 9% interest rate. Its beta is 1.6, the risk-free rate is 4%, and the market risk premium is 7%. Elliott’s combined federal-plus-state tax rate is 25%. a. What is Elliott’s cost of equity? b. What is its weighted average cost of capital? c. What is its unlevered cost of equity?
Stevenson's Bakery is an all-equity firm that has projected perpetual EBIT of $195,000 per year. The cost of equity is 13.9 percent and the tax rate is 21 percent. The firm can borrow perpetual debt at 5.9 percent. Currently, the firm is considering converting to a debt–equity ratio of 1.05. What is the firm's levered value? MM assumptions hold. Multiple Choice $841,727 $1,092,192 $757,554 $927,952 $1,227,480

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