EBK CORPORATE FINANCE
4th Edition
ISBN: 8220103164535
Author: DeMarzo
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Videos
Question
Chapter 18, Problem 2P
Summary Introduction
To determine: A constant debt-equity ratio for Company C.
Introduction:
Debt-equity ratio indicates how much debt a company uses to finance its assets relative to the value of the shareholders' equity. This ratio is calculated by dividing the company’s total liabilities by its shareholders equity; it is used to measure the company’s financial leverage.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Please help me.
Suppose Caterpillar, Inc., has
671
million shares outstanding with a share price of
$72.97,
and
$25.71
billion in debt. If in three years, Caterpillar has
700
million shares outstanding trading for
$83.96
per share, how much debt will Caterpillar have if it maintains a constant debt-equity ratio?
Question content area bottom
Part 1
The amount of debt required in three years will be
$enter your response here
billion. (
Suppose that Papa Bell, Inc.’s equity is currently selling for $50 per share, with 3.5 million shares outstanding. Assume the firm also has 12,000 bonds outstanding, and they are selling at 94 percent of par.What are the firm’s current capital structure weights?
Capital Structure Weights
Equity
%
Debt
%
Chapter 18 Solutions
EBK CORPORATE FINANCE
Ch. 18.1 - What are the three methods we can use to include...Ch. 18.1 - Prob. 2CCCh. 18.2 - Prob. 1CCCh. 18.2 - Prob. 2CCCh. 18.3 - Prob. 1CCCh. 18.3 - Prob. 2CCCh. 18.4 - Prob. 1CCCh. 18.4 - Prob. 2CCCh. 18.5 - How do we estimate a projects unlevered cost of...Ch. 18.5 - What is the incremental debt associated with a...
Ch. 18.6 - Prob. 1CCCh. 18.6 - Prob. 2CCCh. 18.7 - How do we deal with issuance costs and security...Ch. 18.7 - Prob. 2CCCh. 18.8 - When a firm has pre-determined tax shields, how do...Ch. 18.8 - Prob. 2CCCh. 18 - Prob. 1PCh. 18 - Prob. 2PCh. 18 - In 2015, Intel Corporation had a market...Ch. 18 - Prob. 4PCh. 18 - Suppose Goodyear Tire and Rubber Company is...Ch. 18 - Suppose Alcatel-Lucent has an equity cost of...Ch. 18 - Acort Industries has 10 million shares outstanding...Ch. 18 - Prob. 8PCh. 18 - Prob. 9PCh. 18 - Consider Alcatel-Lucents project in Problem 6. a....Ch. 18 - Consider Alcatel-Lucents project in Problem 6. a....Ch. 18 - In year 1, AMC will earn 2000 before interest and...Ch. 18 - Prokter and Gramble (PKGR) has historically...Ch. 18 - Amarindo, Inc. (AMR), is a newly public firm with...Ch. 18 - Remex (RMX) currently has no debt in its capital...Ch. 18 - You are evaluating a project that requires an...Ch. 18 - Prob. 17PCh. 18 - You are on your way to an important budget...Ch. 18 - Your firm is considering building a 600 million...Ch. 18 - Prob. 20PCh. 18 - DFS Corporation is currently an all-equity firm,...Ch. 18 - Prob. 22PCh. 18 - Prob. 23PCh. 18 - Prob. 24PCh. 18 - XL Sports is expected to generate free cash flows...Ch. 18 - Propel Corporation plans to make a 50 million...Ch. 18 - Gartner Systems has no debt and an equity cost of...Ch. 18 - Revtek, Inc., has an equity cost of capital of 12%...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- A firm has 41 million shares outstanding with a current share price of $4.30 The firm has a market-to-book ratio of 8.5 and a book debt-equity ratio of 2.2. If the firm currently has $18 million in cash, what is its enterprise value?arrow_forwardSuppose that Papa Bell, Inc.'s equity is currently selling for $56 per share, with 4.1 million shares outstanding. Assume the firm also has 18,000 bonds outstanding, and they are selling at 95 percent of par. What are the firm's current capital structure weights? (Do not round intermediate calculations. Round your answers to 2 decimal places.)arrow_forwardCoca-Cola Inc. (KO) has FCFF of $9.205 billion and FCFE of $7.554 billion. Coca-Cola’s WACC is 7.0 percent, and its required rate of return for equity is 8.5 percent. FCFF is expected to grow forever at 2.07 percent, and FCFE is expected to grow forever at 4.81 percent. Pfizer has debt outstanding of $52.867 billion. What is the total value of Coca-Cola’s equity using the FCFF valuation approach? B. What is the total value of Coca-Cola’s equity using the FCFE valuation approacharrow_forward
- A company has a current value of operations of $800 million,and it holds $100 million in short-term investments. If thecompany has $400 million in debt and has 10 million commonshares outstanding, what is the estimated price per share?($50.00arrow_forwardSora Industries has 62 million outstanding shares, $124 million in debt, $47 million in cash, and the following projected free cash flow for the next four years: a. Suppose Sora's revenue and free cash flow are expected to grow at a 3.6% rate beyond year four. If Sora's weighted average cost of capital is 14.0%, what is the value of Sora stock based on this information? b. Sora's cost of goods sold was assumed to be 67% of sales. If its cost of goods sold is actually 70% of sales, how would the estimate of the stock's value change? c. Return to the assumptions of part (a) and suppose Sora can maintain its cost of goods sold at 67% of sales. However, the firm reduces its selling, general, and administrative expenses from 20% of sales to 16% of sales. What stock price would you estimate now? (Assume no other expenses, except taxes, are affected.) d. Sora's net working capital needs were estimated to be 18% of sales (their current level in year zero). If Sora can reduce this requirement…arrow_forwardTime Warner shares have a market capitalization of $55 billion. The company just paid a dividend of $0.35 per share and each share trades for $35. The growth rate in dividends is expected to be 6.5% per year. Also, Time Warner has $20 billion of debt that trades with a yield to maturity of 7%. If the firm's tax rate is 30%, compute the WACC?arrow_forward
- Time Warner shares have a market capitalization of $70 billion. The company is expected to pay a dividend of $0.35. per share and each share trades for $20. The growth rate in dividends is expected to be 8% per year. Also, Time Warner has $15 billion of debt that trades with a yield to maturity of 8%. If the firm's tax rate is 25%, compute the WACC? O A. 9.09% B. 7.72% C. 8.63% OD. 8.18%arrow_forwardYour company has expected future cash flows of $70 million in perpetuity. The company's WACC is 12.8%. The company has $337 million in debt, and $188 million in excess cash, and 12 million shares. What is the share price of the company?arrow_forwardTime Warner shares have market capitalization of $55 billion. The company just paid a dividend of $0.30 per share and each share trades for $45. The growth rate in dividends is expected to be 7% per year. Also, Time Warner has $15 billion of debt that trades with a yield to maturity of 9%. If the firms tax rate is 40%, compute the WACC? A. 7.22% B. 8.3% C. 7.94% D. 6.86%arrow_forward
- The Wei Corporation expects next year's net income to be $10 million. The firm is currently financed with 55% debt. Wei has $8 million of profitable investment opportunities, and it wishes to maintain its existing debt ratio. According to the residual distribution model (assuming all payments are in the form of dividends), how large should Wei's dividend payout ratio be next year? Round your answer to two decimal places.arrow_forwardA company’s stock price is $50 per share. The company has $15 billion in total assets. Its balance sheet shows $2 billion in current liabilities, $3.5 billion in long-term debt, and $5 billion in common equity. It has 750 million shares of common stock outstanding. What is the book value per share? What is the market/book ratio?arrow_forwardTime Warner shares have a market capitalization of $65 billion. The company just paid a dividend of $0.30 per share and each share trades for $35. The growth rate in dividends is expected to be 8% per year. Also, Time Warner has $15 billion of debt that trades with a yield to maturity of 7%. If the firm's tax rate is 25%, compute the WACC? O A. 7.82% O B. 8.24% OC. 9.06% O D. 9.47%arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education
Investing For Beginners (Stock Market); Author: Daniel Pronk;https://www.youtube.com/watch?v=6Jkdpgc407M;License: Standard Youtube License