Alpha Co. has a debt-equity ratio of 0.6, a pretax cost of debt of 7.5 percent, and an unlevered cost of equity of 12 percent. What is Alpha's cost of equity if you ignore taxes? Multiple choice question. 16.5% 9.3% 14.7% 12% Explain why
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Alpha Co. has a debt-equity ratio of 0.6, a pretax cost of debt of 7.5 percent, and an unlevered
Multiple choice question.
16.5%
9.3%
14.7%
12%
Explain why
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- The Rivoli Company has no debt outstanding, and its financial position is given by the following data: What is Rivoli’s intrinsic value of operations (i.e., its unlevered value)? What is its intrinsic stock price? Its earnings per share? Rivoli is considering selling bonds and simultaneously repurchasing some of its stock. If it moves to a capital structure with 30% debt based on market values, its cost of equity, rs, will increase to 12% to reflect the increased risk. Bonds can be sold at a cost, rd, of 7%. Based on the new capital structure, what is the new weighted average cost of capital? What is the levered value of the firm? What is the amount of debt? Based on the new capital structure, what is the new stock price? What is the remaining number of shares? What is the new earnings per share?A company had WACC (weighted average cost of capital) equal to 8. % If the company pays off mortgage bonds with an interest rate of 4% and issues an equal amount of new stock considered to be relatively risky by the market, which of the following is true? a. residual income will increase. b. ROI will decrease. c. WACC will increase. d. WACC will decrease.Kose, Inc., has a target debt-equity ratio of 1.31. Its WACC is 8.1 percent, and the tax rate is 22 percent. a. If the company’s cost of equity is 12 percent, what is its pretax 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. If instead you know that the aftertax cost of debt is 5.8 percent, what is the cost of equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
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- Roy's Welding has a cost of equity of 14.1 percent and a pretax cost of debt of 7.7 percent. The required return on the assets is 13.2 percent. What is the debt-equity ratio based on M&M II with no taxes?Ursala, Incorporated, has a target debt-equity ratio of 1.20. Its WACC is 8.7 percent, and the tax rate is 25 percent. a. If the company’s cost of equity is 13 percent, what is its pretax 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. If instead you know that the aftertax cost of debt is 5.8 percent, what is the cost of equity?Starset, Inc., has a target debt-equity ratio of .80. Its WACC is 9.1 percent, and the tax rate is 25 percent. a.If the company's cost of equity is 13 percent, what is its pretax 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.If instead you know that the aftertax cost of debt is 5.8 percent, what is the cost of equity?
- Shadow Corp. has no debt but can borrow at 7.9 percent. The firm's WACC is currently 9.7 percent, and the tax rate is 23 percent. a. c. What is the firm'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.) b. If the firm converts to 35 percent debt, what will its cost of equity be? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) If the firm converts to 50 percent debt, what will its cost of equity be? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) d-1. If the firm converts to 35 percent debt, what will the company's WACC be? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) d-2. If the firm converts to 50 percent debt, what will the company's WACC be? (Do not round intermediate calculations and…Antwerp Co. has a debt-to-equity ratio of 1.4, a corporate tax rate of 30%, pays 4% interest on its debt and has a required rate of return on equity of 12%. What is II’s WACC? How much does the debt tax shield reduce II’s WACC? What is the required rate of return on firm assets?Kountry Kitchen has a cost of equity of 12.7 percent, a pretax cost of debt of 5.6 percent, and the tax rate is 21 percent. If the company's WACC is 9.22 percent, what is its debt-equity ratio?
