The Cost of Debt of the Company. Introduction: The cost of capital is the WACC (Weighted Average Cost of Capital) is the total rate of return for a company which anticipates reimbursing all their investors. It is considered as a financing resource in the target capital structure of a company and it measured in terms of weights of fractions.

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Answer 1

Question

Chapter 18, Problem 4QP

a.

Summary Introduction

To Determine: The Cost of Debt of the Company.

Introduction: The cost of capital is the WACC (Weighted Average Cost of Capital) is the total rate of return for a company which anticipates reimbursing all their investors. It is considered as a financing resource in the target capital structure of a company and it measured in terms of weights of fractions.

b.

Summary Introduction

To Determine: The Cost of Equity of the Company.

c.

Summary Introduction

To Determine: The Weighted Average Cost of Capital.

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If Wild Widgets, Inc., were an all-equity company, it would have a beta of .90. The company has a target debt-equity ratio of .60. The expected return on the market portfolio is 11 percent and Treasury bills currently yield 3.3 percent. The company has one bond issue outstanding that matures in 26 years, a par value of $2,000, and a coupon rate of 6 percent. The bond currently sells for $2,130. The corporate tax rate is 24 percent. a. What is the company’s cost of debt? What is the company’s cost of equity? What is the company’s weighted average cost of capital?

If Smolinski, Incorporated, were an all-equity company, it would have a beta of.95. The company has a target debt - equity ratio of .50. The expected return on the market portfolio is 12 percent and Treasury bills currently yield 3.1 percent. The company has one bond issue outstanding that matures in 25 years, a par value of $1,000, and a coupon rate of 6 percent. The bond currently sells for $ 1,050. The corporate tax rate is 23 percent. a. What is the company's cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g ., 32.16.) b. What is the company's cost of equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the company' s weighted average cost of capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e. g., 32.16.)

If Wild Widgets Inc. were an all-equity company, it would have a beta of 1.50. The company has a target debt-to-equity ratio of 0.4. The expected return on the market portfolio is 11 percent, and Treasury bills currently yield 5.3 percent. The company has one bond issue outstanding that matures in 20 years and has a 9.6 percent coupon rate. The bond currently sells for $1,210. The corporate tax rate is 34 percent. a. What is the company’s cost of debt? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit % sign in your response.) b. What is the company’s cost of equity? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit % sign in your response.) c. What is the company’s WACC? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit % sign in your response.)

Answer 2

Question

Chapter 18, Problem 4QP

a.

Summary Introduction

To Determine: The Cost of Debt of the Company.

Introduction: The cost of capital is the WACC (Weighted Average Cost of Capital) is the total rate of return for a company which anticipates reimbursing all their investors. It is considered as a financing resource in the target capital structure of a company and it measured in terms of weights of fractions.

b.

Summary Introduction

To Determine: The Cost of Equity of the Company.

c.

Summary Introduction

To Determine: The Weighted Average Cost of Capital.

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Answer 3

Question

Chapter 18, Problem 4QP

a.

Summary Introduction

To Determine: The Cost of Debt of the Company.

Introduction: The cost of capital is the WACC (Weighted Average Cost of Capital) is the total rate of return for a company which anticipates reimbursing all their investors. It is considered as a financing resource in the target capital structure of a company and it measured in terms of weights of fractions.

b.

Summary Introduction

To Determine: The Cost of Equity of the Company.

c.

Summary Introduction

To Determine: The Weighted Average Cost of Capital.

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Answer 4

Question

Chapter 18, Problem 4QP

a.

Summary Introduction

To Determine: The Cost of Debt of the Company.

Introduction: The cost of capital is the WACC (Weighted Average Cost of Capital) is the total rate of return for a company which anticipates reimbursing all their investors. It is considered as a financing resource in the target capital structure of a company and it measured in terms of weights of fractions.

b.

Summary Introduction

To Determine: The Cost of Equity of the Company.

c.

Summary Introduction

To Determine: The Weighted Average Cost of Capital.

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Answer 5

Chapter 18, Problem 4QP

a.

Summary Introduction

To Determine: The Cost of Debt of the Company.

Introduction: The cost of capital is the WACC (Weighted Average Cost of Capital) is the total rate of return for a company which anticipates reimbursing all their investors. It is considered as a financing resource in the target capital structure of a company and it measured in terms of weights of fractions.

b.

Summary Introduction

To Determine: The Cost of Equity of the Company.

c.

Summary Introduction

To Determine: The Weighted Average Cost of Capital.

Answer 6

Chapter 18, Problem 4QP

a.

Summary Introduction

To Determine: The Cost of Debt of the Company.

Introduction: The cost of capital is the WACC (Weighted Average Cost of Capital) is the total rate of return for a company which anticipates reimbursing all their investors. It is considered as a financing resource in the target capital structure of a company and it measured in terms of weights of fractions.

Answer 7

Chapter 18, Problem 4QP

a.

Summary Introduction

To Determine: The Cost of Debt of the Company.

Introduction: The cost of capital is the WACC (Weighted Average Cost of Capital) is the total rate of return for a company which anticipates reimbursing all their investors. It is considered as a financing resource in the target capital structure of a company and it measured in terms of weights of fractions.

Answer 8

b.

Summary Introduction

To Determine: The Cost of Equity of the Company.

Answer 9

b.

Summary Introduction

To Determine: The Cost of Equity of the Company.

Answer 10

c.

Summary Introduction

To Determine: The Weighted Average Cost of Capital.

Answer 11

c.

Summary Introduction

To Determine: The Weighted Average Cost of Capital.

Answer 12

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Answer 13

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Answer 14

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Answer 15

Ch. 18 - APV How is the APV of a project calculated?Ch. 18 - WACC and APV What is the main difference between...Ch. 18 - FTE What is the main difference between the FTE...Ch. 18 - Prob. 4CQ Ch. 18 - Prob. 5CQ Ch. 18 - NPV and APV Zoso is a rental car company that is...Ch. 18 - APV Gemini, Inc., an all-equity firm, is...Ch. 18 - Prob. 3QP Ch. 18 - Prob. 4QP Ch. 18 - Prob. 5QP

Solution Summary: The author explains the cost of debt of a company, which is 5.82%, and the unlevered costs of equity of the company.

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To Determine: The Cost of Equity of the Company.

To Determine: The Weighted Average Cost of Capital.

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Chapter 18 Solutions