Messan Co. (a U.S. firm) borrows U.S. funds at an interest rate of 10 percent per year. Its beta is 1.0. The long-term annualized risk-free rate in the U.S. is 6 percent. The stock market return in the U.S. is expected to be 16 percent annually. Messan’s target capital structure is 40 percent debt and 60 percent equity. Messan Co. is subject to a 30% corporate tax rate. Estimate the cost of capital to Messan Co. Messan Co a U S firm borrows U S funds at an
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Messan Co. (a U.S. firm) borrows U.S. funds at an interest rate of 10 percent per year. Its beta is 1.0. The long-term annualized risk-free rate in the U.S. is 6 percent. The stock market return in the U.S. is expected to be 16 percent annually. Messan’s target capital structure is 40 percent debt and 60 percent equity. Messan Co. is subject to a 30% corporate tax rate. Estimate the cost of capital to Messan Co.
Messan Co a U S firm borrows U S funds at an
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- BHP Billiton, An Australian company's stock, has a beta of 0.80. The expected return on the market is 12 per cent, and Treasury bills are yielding 3,40 per cent. Further, the company has a debt issue outstanding with 15 years to maturity that is quoted at 65 per cent of face value. The issue makes semiannual payments and has an embedded cost of 6 per cent annually, It considers a debt-equity ratio of 0.80 and a 25 per cent corporate tax rate. In this year, the company has an EBIT of $3.15 million. Depreciation, the increase in net working capital, and capital spending were $265,000, $105,000, and $495,000, respectively. You expect that over the next five years, EBIT will grow at 15 per cent per year, depreciation and capital spending will grow at 20 per cent per year, and NW will grow at 10 per cent per year, It also has $19.5 million in debt and 400,000 shares outstanding, After Year-5, the adjusted cash flow from assets is expected to grow at 3.50 per cent indefinitely, Answer the…BHP Billiton, An Australian company’s stock, has a beta of 0.90. The expected return on the market is 10.50 per cent, and Treasury bills are yielding 3.40 per cent. Further, the company has a debt issue outstanding with 23 years to maturity that is quoted at 120 per cent of face value. The issue makes semiannual payments and has an embedded cost of 6 per cent annually. It considers a debt-equity ratio of 0.60 and a 22 per cent corporate tax rate. In this year, the company has an EBIT of $3.15 million. Depreciation, the increase in net working capital, and capital spending were $265,000, $105,000, and $495,000, respectively. You expect that over the next five years, EBIT will grow at 15 per cent per year, depreciation and capital spending will grow at 20 per cent per year, and NWC will grow at 10 per cent per year. It also has $19.5 million in debt and 400,000 shares outstanding. After Year-5, the adjusted cash flow from assets is expected to grow at 3.50 per cent indefinitely. What…BHP Billiton, An Australian company's stock, has a beta of 0.90. The expected return on the market is 10.50 per cent, and Treasury bills are yielding 3.40 per cent. Further, the company has a debt issue outstanding with 23 years to maturity that is quoted at 120 per cent of face value. The issue makes semiannual payments and has an embedded cost of 6 per cent annually. It considers a debt-equity ratio of 0.60 and a 22 per cent corporate tax rate. In this year, the company has an EBIT of $3.15 million. Depreciation, the increase in net working capital, and capital spending were $265,000, $105,000, and $495,000, respectively. You expect that over the next five years, EBIT will grow at 15 per cent per year, depreciation and capital spending will grow at 20 per cent per year, and NWC will grow at 10 per cent per year. It also has $19.5 million in debt and 400,000 shares outstanding. After Year-5, the adjusted cash flow from assets is expected to grow at 3.50 per cent indefinitely. Answer…
- BHP Billiton, An Australian company's stock, has a beta of 0.90. The expected return on the market is 10.50 per cent, and Treasury bills are yielding 3.40 per cent. Further, the company has a debt issue outstanding with 23 years to maturity that is quoted at 120 per cent of face value. The issue makes semiannual payments and has an embedded cost of 6 per cent annually. It considers a debt-equity ratio of 0.60 and a 22 per cent corporate tax rate. In this year, the company has an EBIT of $3.15 million. Depreciation, the increase in net working capital, and capital spending were $265,000, $105,000, and $495,000, respectively. You expect that over the next five years, EBIT will grow at 15 per cent per year, depreciation and capital spending will grow at 20 per cent per year, and NWC will grow at 10 per cent per year. It also has $19.5 million in debt and 400,000 shares outstanding. After Year-5, the adjusted cash flow from assets is expected to grow at 3.50 per cent indefinitely. Answer…Sambuka, Inc. can issue annual coupon bonds in either U.S. dollars or in Euros that mature in threeyears. Dollar-denominated bonds would have a coupon rate of 5 percent; Euro-denominated bonds would have a coupon rate of 4 percent. Assuming that Sambuka can issue bonds worth $10,000,000 in US dollars or 8 million Euros, given that the current exchange rate is $1.25/1 Euro. If the forecasted exchange rate for the Euro is $1.21for each of the next three years what is the annual cost of financing for the Euro-denominated bonds? Which type of bond should Sambuka issue?Thunderhorse Oil is a U.S. oil company. Its current cost of debt is 7.40%, and the 10-year U.S. Treasury yield, the proxy for the risk-free rate of interest, is 3.50%. The expected return on the market portfolio is 8.20%. The company's effective tax rate is 30%. Its optimal capital structure is 55% debt and 45% equity. a. If Thunderhorse's beta is estimated at 1.80, what is Thunderhorse's weighted average cost of capital? b. If Thunderhorse's beta is estimated at 1.50 , significantly lower because of the continuing profit prospects in the global energy sector, what is Thunderhorse's weighted average cost of capital?
- An Australian commercial bank is looking to issue $1 billion of bonds into the wholesale funding markets to fund its ever-increasing demand for credit growth which is fuelling yet another house price boom. The bonds will be structured with a fixed-interest coupon priced on current government bond yields and equal to current interest rates of 3.00 per cent per annum, coupons paid half-yearly and a tenor of seven years. The bonds are denominated and priced into $1,000 allotments. a. What amount would the bank have raised once the bond is priced and launched into the capital markets? b. After one year, yields on identical types of securities are now 4.00 per cent per annum. The existing bond now has exactly six years to maturity. What is the value, or price, of the existing bond in the secondary market?New Hampshire Corp. has decided to issue three-year bonds denominated in 10 million Chinese yuan at par. The bonds have a coupon rate of 14 percent. If the yuan is expected to appreciate from its current level of $0.15 to $0.156, $0.164, and $0.173 in years 1, 2, and 3, respectively, what is the financing cost of these bonds?The bank invests £15 million in a coupon bond issues by UK Treasury f) The coupon bond of point £15m pays a coupon of 4% per year, paid semi-annually. It has 2 years to maturity. If the current Yield-to-Maturity is 3.5% semi-annually, what is the price of the bond? g) A year later, the Bank of England is worried by rising inflation and announces its intention to raise interest rates. This announcement immediately sends the Yield-to-Maturity of bond in point (f) surging 300 basis points. Recalculate the price of the bond. h) What is the Holding Period Return recorded on the bond position over the past year? i) What is the Profit-and-Loss recorded on the bond position in Pound Sterling (£)? j) Record the result of point(g) in the T-accounts. k) If your result is a loss, please discuss if the bank has enough equity capital to support that loss. l) Please discuss the Basel Capital accords. Focus particularly on capital requirements and their calculation.
- Tree Row Bank has assets of $150 million, liabilities of $135 million, and equity of $15 million. The asset duration is six years and the duration of the liabilities is four years. Market interest rates are 10 percent. Tree Row Bank wishes to hedge the balance sheet with Treasury bond futures contracts, which currently have a price quote of $95 per $100 face value for the benchmark 20-year, 8 percent coupon bond underlying the contract, a market yield of 8.5295 percent, and a duration of 10.3725 years. (LG 24-2, LG 24-3) d. If the bank had hedged with Treasury bill futures contracts that had a market value of $98 per $100 of face value and a duration of 0.25 year, how many futures contracts would have been necessary to fully hedge the balance sheet? e. What additional issues should be considered by the bank in choosing between T-bond or T-bill futures contracts?Tree Row Bank has assets of $150 million, liabilities of $135 million, and equity of $15 million. The asset duration is six years and the duration of the liabilities is four years. Market interest rates are 10 percent. Tree Row Bank wishes to hedge the balance sheet with Treasury bond futures contracts, which currently have a price quote of $95 per $100 face value for the benchmark 20-year, 8 percent coupon bond underlying the contract, a market yield of 8.5295 percent, and a duration of 10.3725 years. (LG 24-2, LG 24-3) a. Should the bank go short or long on the futures contracts to establish the correct macrohedge? b. How many contracts are necessary to fully hedge the bank? c. Verify that the change in the futures position will offset the change in the cash balance sheet position for a change in market interest rates of plus 100 basis points and minus 50 basis points.A U.S. company can borrow 10,000 pounds in Great Britain for 6% interest, paying back 10,600 pounds in one year. Alternatively, the U.S. company can borrow an equivalent amount of U.S dollars in the United States and pay 13% interest. Assuming capital markets are efficient, estimate the expected inflation rate in the United States if inflation in Great Britain is expected to be zero.