Fundamentals of Corporate Finance, 9th edition (Exclude Access Card)
9th Edition
ISBN: 9781260149586
Author: Richard Brealey, Stewart Myers, Alan Marcus
Publisher: McGraw-Hill Education
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Chapter 13, Problem 2QP
Summary Introduction
To compute: The weighted average cost of capital (WACC) of the company.
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Here is some information about Stokenchurch Inc.:
Beta of common stock = 1.2
Treasury bill rate = 4%
Market risk premium = 6.5%
Yield to maturity on long-term debt = 7%
Book value of equity = $340 million
Market value of equity = $680 million
Long-term debt outstanding = $680 million
Corporate tax rate = 21%
What is the company's WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal
places.)
WACC
%
WACC. Here is some information about Stokenchurch Inc.:
Beta of common stock = 1.2
Treasury bill rate = 4%
Market risk premium = 7.5%
Yield to maturity on long-term debt = 6%
Book value of equity = $440 million
Market value of equity = $880 million
Long-term debt outstanding = $880 million
Corporate tax rate = 21%
What is the company's WACC? (LO13-1)
2.
Here is some information about Stokenchurch Inc.:
Beta of common stock = 1.5
Treasury bill rate = 4%
Market risk premium = 6.8%
Yield to maturity on long-term debt = 9%
Book value of equity = $370 million
Market value of equity = $740 million
Long-term debt outstanding = $740 million
Corporate tax rate = 21%
What is the company’s WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Chapter 13 Solutions
Fundamentals of Corporate Finance, 9th edition (Exclude Access Card)
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- As an analyst, you were task to compute for the WACC of various companies given the following information. Income tax rate is 30%. Risk free rate Beta Market return Debt to equity ratio Dettmargin Accenture Co. 4% 1.25 12% 2.50 2% Nestle Co. 3% 1.5 11% 3.00 3% Which compeny nes the nighest cost of equity? FedEx Co. 2% 1.3 10% 4.00 2.50% Cadence Co. 3.50% 1.4 8% 3.50 1.50%arrow_forwardHere is some information about Stokenchurch Incorporated: Beta of common stock = 2.0 Treasury bill rate=4% Market risk premium = 8.3% Yield to maturity on long-term debt = 6% Book value of equity = $520 million Market value of equity = $1,040 million Long-term debt outstanding = $1,040 million. Corporate tax rate = 21% What is the company's WACC? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. WACC %arrow_forwardThe following were gathered for estimating the cost of equity of KKK Corporation: Return on Treasury Bonds = 4%; Return on the Market = 10%; Return on KKK Bonds = 6%. Upon analysis, you determined that the beta of KKK shares relating to the market return is 1.2 while a risk premium of 4% should be given to KKK's investors over its creditors. How much is the cost of equity using the capital asset pricing model?arrow_forward
- What is the weighted-average cost of capital for SKYE Corporation given the following information? Equity shares outstanding Stock price per share Yield to maturity on debt Book value of interest-bearing debt Coupon interest rate on debt. Interest rate on government bonds SKYE's equity beta Historical excess return on stocks Tax rate Note: Enter your answer to 1 decimal place. Weighted-average cost of capital % 1 million. $ 35 7.68% $14 million 9% 7% 0.75 7.0% 40%arrow_forwardThe following were gathered for estimating the cost of equity of KKK Corporation: Return on Treasury Bonds = 4%; Return on the Market = 10%; Return on KKK Bonds = 6%. Upon analysis, you determined that the beta of KKK shares relating to the market return is 1.2 while a risk premium of 4% should be given to KKK's investors over its creditors. How much is the cost of equity using the bond plus risk premium?arrow_forwardCalculate WACC from following data. Risk free rate 1.63% total debt $78.93 billion Market Cap $2580 billion Beta 0.86 Corporate Bond rate 3.10% CAPM S&P historical return 5.90% Tax Rate 21% please show stepsarrow_forward
- 4. Please consider the following company items: Other items Market risk premium Long term growth Long term ROCB Tax rate 25% 6.0% 2.0% 0.60 0.30 Unlevered beta Risk free rate 3.0% 9.0% Target debt/equity ratio Bond rating Small firm premium Credit spread debt 2.0% 1.5% BBB What is the Weighted Average Cost of Capital (or WACC) of this company in percentages (%)? Please round your answer to one decimal place, use a period to indicate the decimal place and provide your answer without a percentage sign (e.g. 13.6 instead of 13.6%).arrow_forwardWhat is the weighted-average cost of capital for SKYE Corporation given the following information? Equity shares outstanding Stock price per share Yield to maturity on debt Book value of interest-bearing debt Coupon interest rate on debt Interest rate on government bonds SKYE's equity beta Historical excess return on stocks Tax rate Note: Enter your answer to 1 decimal place. X Answer is complete but not entirely correct. Weighted-average cost of capital 11.6 × % 1 million $ 23 7.68% $14 million 9% 7% 0.75 5.8% 40%arrow_forwardAn equity analyst, has determined that the appropriate ratio of Enterprise Value to EBITDA (EV/EBITDA) for Bulldogs Inc. is 10.2. The analyst has also collected the following forecasted information for Bulldogs Inc.: EBITDA = ₽22,000,000 Market value of debt = ₽56,000,000 Cash = ₽1,500,000 The value of equity for Bulldogs Inc. is closest to: a. ₽224 million. b. ₽100 million. c. ₽169 million. d. ₽281 millionarrow_forward
- HeadAche Inc. depends on two sources of financing: bond issues and common stock. In the following table, you can see the market value of these two sources as well as required rates of return: Market Value Required Return Bonds $480,000,000 8.00% Common stock $720,000,000 12.00% Total $1,200,000,000 Other financial information: 1) Using FCFF, what is the present value of the firm, and the present value of the equity?2) Using FCFE, what is the present value of the equity?arrow_forwardFollowing is the financial statements data for XYZ Corporation: XYZ Corp. Total Assets $23,565 Interest-Bearing Debt $12,131 Average borrowing rate for debt Common Equity: 11.7% Market Value $26,887 Marginal Income Tax Rate 35% Market Beta 1.91 Based on the information above, what is the weight on equity capital that you can use to calculate the firm's weighted-average cost of capital (WACC) (Write your answer in percent, omit the "%" sign, and round your answer to two decimal places. For example, if your answer is 0.538, type in 53.80):arrow_forwardQuestion: Assuming the debt-equity ratio is 0.70, what is the value of the Microsoft? Which factors are missing when calculating the firm value with just this amount of data? Shares outstanding: 7,753,000,000 Current stock price: 137.32arrow_forward
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