Which of the following statements is CORRECT?WACC calculations should be based on the before-tax costs of all the individual capital components.Flotation costs associated with issuing new common stock normally reduce the WACC.If a company's tax rate increases, then, all else equal, its weighted average cost of capital will decline.An increase in the risk-free rate will normally lower the marginal costs of both debt and equity financing.O A change in a company's target capital structure cannot affect its WACC.00000 The Collins Group, a leading producer of custom automobile accessories, has hired you to estimate the firm's weighted average cost of capital. The balance sheet and some other information are provided below.Assets$ 38,000,000101,000,000$139,000,000Current assetsNet plant, property, and equipmentTotal assetsLiabilities and EquityAccounts payable$ 10,000,0009,000,000$ 19,000,00040,000,000$ 59,000,000AccrualsCurrent liabilitiesLong-term debt (40,000 bonds, S1,000 par value)Total liabilitiesCommon stock (10,000,000 shares)Retained earningsTotal shareholders' equityTotal liabilities and shareholders' equity30,000,000_50,000,000_80,000,000$139,000,000The stock is currently selling for $15.25 per share, and its noncallable $1,000 par value, 20-year, 7.25% bonds with semiannual payments are selling for $875.00. The beta is 1.25, the yield on a 6-month Treasury bill is 3.50%, and the yield on a 20-year Treasury bond is 5.50%.The required return on the stock market is 11.50%, but the market has had an average annual return of 14.50% during the past 5 years. The firm's tax rate is 40%.Answer each of the Questions in the two and a half hours permitted.

The weighted average cost of capital (WACC) is a measure of a firm's cost of capital in which each…

Which of the following statements is CORRECT? WACC calculations should be based on the before-tax costs of all the individual capital components. Flotation costs associated with issuing new common stock normally reduce the WACC. If a company's tax rate increases, then, all else equal, its weighted average cost of capital will decline. An increase in the risk-free rate will normally lower the marginal costs of both debt and equity financing. A change in a company's target capital structure cannot affect its WACC. 00000

Which of the following statements is CORRECT? WACC calculations should be based on the before-tax costs of all the individual capital components. Flotation costs associated with issuing new common stock normally reduce the WACC. If a company's tax rate increases, then, all else equal, its weighted average cost of capital will decline. An increase in the risk-free rate will normally lower the marginal costs of both debt and equity financing. A change in a company's target capital structure cannot affect its WACC. 00000

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter12: Balanced Scorecard And Other Performance Measures

Section: Chapter Questions

Problem 7EB: Assume Plainfield Manufacturing has debt of $6,500,000 with a cost of capital of 9.5% and equity of...

See similar textbooks

Similar questions

The Collins Group, a leading producer of custom automobile accessories, has hired you to estimate the firm's weighted average cost of capital. The balance sheet and some other information are provided below. Assets Current assets $ 38,000,000Net plant, property, and equipment 101,000,000Total assets $139,000,000Liabilities and Equity Accounts payable $ 10,000,000Accruals 9,000,000Current liabilities $ 19,000,000Long-term debt (40,000 bonds, $1,000 par value) 40,000,000Total liabilities $ 59,000,000Common stock (10,000,000 shares) 30,000,000Retained earnings 50,000,000Total shareholders' equity 80,000,000Total liabilities and shareholders' equity $139,000,000 The stock is currently selling for $15.25 per share, and its noncallable $1,000 par value, 20-year, 7.25% bonds with semiannual payments are selling for $875.00. The beta is 1.25, the yield on a 6-month Treasury bill is 3.50%, and the yield on a 20-year Treasury bond is 5.50%. The required return on the stock market is 11.50%, but…
Assume that you have been hired as a consultant by CGT, a major producer of chemicals and plastics, including plastic grocery bags, styrofoam cups, and fertilizers, to estimate the firm's weighted average cost of capital. The balance sheet and some other information are provided below. Assets Current assets $38,000,000 Net plant, property, and equipment $101,000,000 Total assets $139,000,000 Liabilities and Equity Accounts payable $10,000,000 Accruals $9,000,000 Current liabilities $19,000,000 Long-term debt (40,000 bonds, $1,000 par value) $40,000,000 Total liabilities $59,000,000 Common stock (10,000,000 shares) $30,000,000 Retained earnings $50,000,000 Total shareholders' equity $80,000,000 Total liabilities and shareholders' equity $139,000,000 The stock is currently selling for $15.25 per share, and its noncallable $1,000.00 par value, 20-year, 9.00% bonds with semiannual payments are selling for $930.41. The beta is 1.22, the yield on a 6-month…
The company is in search of resources for a new investment of TL 3,000,000. As a financial manager, a) Find the current weighted average cost of capital according to the resource distribution below.
Suppose a firm has the following information: Operatingcurrent assets = $2.7 million; operating current liabilities =$1.5 million; long-term bonds = $3 million; net plant andequipment = $7.8 million; and other long-term operating assets =$1 million. How much is tied up in net operating workingcapital (NOWC)? ($1.2 million) How much is tied up in total netoperating capital? ($10 million)
Please answer all. From a company we get the following:Capital employed 20,000,000 dollarDebt / equity ratio = 3Total income 40,000,000 dollarTotal profit 4,000,000 dollarInterest costs 1,500,000 dollarNet profit 2,500,000 dollara. Calculate the return on capital employed (Rsyss)b. Calculate the return on equity (Re)c. Show the relationship between profit margin and capital turnover rate and return on capital employedd. Demonstrate the relationship between the return on equity (Re) and the return on employed capital (Rsyss) with the help of the financial exchange!
Medallion Cooling Systems, has total assets of $10,900,000, EBIT of $1,990,000, and preferred dividends of $205,000and is taxed at a rate of 40%.In an effort to determine the optimal capital structure, the firm has assembled data on the cost of debt, the number of shares of common stock for various levels of indebtedness, and the overall required return on investment: Capital structure debt ratio Cost of debt, rd Number of common stock shares Required return, rs 0% 0% 198,000 12.1% 15 7.9 171,000 13.2 30 8.9 141,000 13.8 45 12.1 107,000 16.1 60 14.9 76,000 20.1 a. Calculate earnings per share for each level of indebtedness. Debt Ratio 0% EBIT $ 1,990,000 Less: Interest $ EBT $ Taxes @40% $ Net profit $ Less: Preferreddividends $ Profits available to common stockholders $…
A)Company Z is a computer manufacturing company that is considering diversifying into financial services. This will require an investment of £100 million and this is to be raised via an equity issue. Given the following information, calculate the weighted average cost of capital (WACC) making sure that you clearly state any assumptions made: Dividend per share, d0 = 10p.The market price per share, PE = 108p cumulative div.Earnings per share, eps = 15p.Book Value of Capital Employed = £8,400,000.There are 28 million shares in issue.£30m. 17% irredeemable debt currently quoted at £120 ex int. 800,000, 8% redeemable debentures which are redeemablein 4 years’ time and have a current market price of £82.50 ex int. £5m. 7-year term loan at 5% over base.Bank base rate = 11%.Corporation tax = 30%. B)What assumptions lie behind the use of the WACC as a discount rate in investment appraisal. C)In light of the above assumptions and the answer to part (a), is it safe for Company Z to use the…
Angel’s Pizza Ltd. Has existing assets in which it has a capital investment of P 150,000. The after tax operating income is 20,000 and company has a cost of capital of 12%. What is the estimated Economic Value Added (EVA) of the firm a. 147,600 b. 2,000 c. 18,000 d. 2,400
ohnBoy Industries has a cash balance of $48,000, accounts payable of $128,000, inventory of $178,000, accounts receivable of $213,000, notes payable of $123,000, and accrued wages and taxes of $38,500.How much net working capital does the firm need to fund?
You have gathered this information on a firm: $500,000 sales, $10,000 cash dividends, $300,000 cost of goods sold, $20,000 administrative expense, $20,000 depreciation expense, $40,000 interest expense, $40,000 purchase of productive equipment, $600 addition to net working capital, and a tax rate of 21%. What is the free cash flow
Macon Mills is a division of Bolin Products, Inc. During the most recent year, Macon had a net income of $40 million. Total assets were $470 million, non-interest-bearing current liabilities were $72,000,000. What are the invested capital and ROI for Macon? Solution What is the invested capital (Total Assets – Non-Interest-Bearing Current Liabilities)? What is the ROI (Net Income/Invested Capital)?
The figures shown in the table below are an extract from the financial statements of Ridgeway (capital employed is $1.5m). $ Revenue 1,000,000 Cost of sales 400,000 Gross profit 600,000 Distribution expenses and administration cost 300,000 Profit before interest and tax 300,000 Finance cost 50,000 Profit before tax 250,000 Income tax expense 100,000 Profit after tax 150,000 What is the return on capital employed (ROCE)?