Fundamentals Of Corporate Finance, 9th Edition
9th Edition
ISBN: 9781260052220
Author: Richard Brealey; Stewart Myers; Alan Marcus
Publisher: McGraw-Hill Education
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Question
Chapter 13, Problem 7QP
a)
Summary Introduction
To compute: The debt to value ratio of the company.
b)
Summary Introduction
To compute: The WACC (weighted average cost of capital of the firm).
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Students have asked these similar questions
Q3) Tanten Company has 200% debt and 80% equity. The borrowing rate is 12%.
A. If you own 4% of the stock of Abacus, what is your dollar return if the company has net operating income of $750,000 and the over all capitalization rate , Ko, is 15%? Value of the firm is 500,000
B. What is the implied required rate of return on equity?
C. What is the market value of stock and the return of stock?
D. What is the market value of debt?
Computing WACC. Find the WACC of William Tell Computers. The total book value of the firm’s equity is $15 million; book value per share is $30. The stock sells for a price of $40 per share, and the cost of equity is 15 percent. The firm’s bonds have a par value of $8 million and sell at a price of 110 percent of par. The yield to maturity on the bonds is 9 percent, and the firm’s tax rate is 40 percent
A company currently has cost of equity of 13.0% and cost of debt of 5.0%. Its WACC is 6.2%. What would you recommend to finance their corporate growth over the next few years?
Oa. Issue new shares of stock since they are so leveraged
O b. Borrow from an insurance company
Oc. Issue new bonds since the cost of debt is relatively low.
Od. Fund with bank loans and preferred stock
O e. Issue convertible bonds
Chapter 13 Solutions
Fundamentals Of Corporate Finance, 9th Edition
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