Corporate Finance
3rd Edition
ISBN: 9780132992473
Author: Jonathan Berk, Peter DeMarzo
Publisher: Prentice Hall
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Chapter 12, Problem 20P
Summary Introduction
To determine: The beta of the project.
Introduction:
Beta is an important indicator of the risk of a security. It measures the systematic risk of a risky investment by comparing the risky investment with the average risky asset in the market.
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Joe Corp is debating raising more capital of some kind. In order to advise them, you first need to calculate the WACC. Currently, the following exists for Joe Corp.
Current Facts:
Stock Price: $30
5 million shares common stock
$40 million Book Value of Preferred Stock
$50 million market value preferred stock
$100 million book value on debt
Debt is currently worth 110% Book Value
1. Calculate the Weighted Percentages of each type of security
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…
Hanover Tech is currently an all equity firm that has 320,000 shares outstanding with a market price of €24 a share. The current cost of equity is 15.4 per cent and the tax rate is 36 per cent. The firm is considering adding €1.2 million of debt with a coupon rate of 6 per cent to its capital structure. The debt will be sold at par value. What is the levered value of the equity? Show your steps.
can u please upload the excel file
Chapter 12 Solutions
Corporate Finance
Ch. 12.1 - According to the CAPM, we can determine the cost...Ch. 12.1 - What inputs do we need to estimate a firms equity...Ch. 12.2 - How do you determine the weight of a stock in the...Ch. 12.2 - Prob. 2CCCh. 12.2 - Prob. 3CCCh. 12.3 - How can you estimate a stocks beta from historical...Ch. 12.3 - How do we define a stocks alpha, and what is its...Ch. 12.4 - Why does the yield to maturity of a firms debt...Ch. 12.4 - Prob. 2CCCh. 12.5 - Prob. 1CC
Ch. 12.5 - Prob. 2CCCh. 12.6 - Why might projects within the same firm have...Ch. 12.6 - Under what conditions can we evaluate a project...Ch. 12.7 - Prob. 1CCCh. 12.7 - Prob. 2CCCh. 12 - Prob. 1PCh. 12 - Suppose the market portfolio has an expected...Ch. 12 - Prob. 3PCh. 12 - Suppose all possible investment opportunities in...Ch. 12 - Using the data in Problem 4, suppose you are...Ch. 12 - Prob. 6PCh. 12 - Prob. 7PCh. 12 - Suppose that in place of the SP 500, you wanted to...Ch. 12 - Prob. 9PCh. 12 - You need to estimate the equity cost or capital...Ch. 12 - In mid-2012, Ralston Purina had AA-rated, 10-year...Ch. 12 - Prob. 15PCh. 12 - Prob. 16PCh. 12 - Prob. 17PCh. 12 - Your firm is planning to invest in an automated...Ch. 12 - Prob. 19PCh. 12 - Prob. 20PCh. 12 - Prob. 21PCh. 12 - Weston Enterprises is an all-equity firm with two...Ch. 12 - Prob. 24PCh. 12 - Your company operates a steel plant. On average,...Ch. 12 - Prob. 26PCh. 12 - You would like to estimate the weighted average...Ch. 12 - Prob. 22P
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