Question
In: Economics
XYZ Company has 40% debt 60% equity as optimal capital structure. The nominal interest rate for...
XYZ Company has 40% debt 60% equity as optimal capital
structure. The nominal interest rate for the company is 12% up to
$5 million debt, above which interest rate rises to 14%. Expected
net income for the year is $17,5 million, dividend payout ratio is
45%, last dividend distributed was $4,5/share, P0 = $37, g=5%,
flotation costs 10% and corporate tax rate is 40%.
a. Find the break points
b. Calculate component costs (cost of each financing source)
c. Calculate WACCs.
d. Two projects are available:
1st. Project requires 15 million initial investments, IRR=18%
2nd. Project requires 10 million initial investments, IRR=12%
Please find the optimal capital budget. (Project(s) to be invested in)
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Rahul Sunny answered 2 months agoRelated Solutions
XYZ Company has 40% debt 60% equity as optimal capital structure. The nominal interest rate for...
XYZ Company has 40% debt 60% equity as optimal capital
structure. The nominal interest rate for the company is 12% up to
$5 million debt, above which interest rate rises to 14%. Expected
net income for the year is $17,5 million, dividend payout ratio is
45%, last dividend distributed was $4,5/share, P0 = $37, g=5%,
flotation costs 10% and corporate tax rate is 40%.
a. Find the break points
b. Calculate component costs (cost of each financing source)
c. Calculate...
XYZ Company has 40% debt 60% equity as optimal capital structure. The nominal interest rate for...
XYZ Company has 40% debt 60% equity as optimal capital
structure. The nominal interest rate for the company is 12% up to
$5 million debt, above which interest rate rises to 14%. Expected
net income for the year is $17,5 million, dividend payout ratio is
45%, last dividend distributed was $4,5/share, P0 = $37, g=5%,
flotation costs 10% and corporate tax rate is 40%.
a. Find the break points
b. Calculate component costs (cost of each financing source)
c. Calculate...
The Happy Company have an optimal capital structure that consists of 40% debt and 60% common equity.
WEIGHTED AVERAGE COST OF CAPITALThe Happy Company have an
optimal capital structure that consists of 40% debt and 60% common
equity. They expect to have $30,000,000 of new retained earnings
available for investment for the next year.• BONDS. Their investment bankers assure them that they could
issue $8,000,000 (net of flotation costs) of $1000 face value bonds
carrying a 10% coupon rate, paying annual interest, having a
10-year maturity, at a price of $900. Flotation costs for this
issue would...
A company has determined that its optimal capital structure consists of 40 percent debt and 60...
A company has determined that its optimal capital structure
consists of 40 percent debt and 60 percent equity. Given the
following information, calculate the firm's weighted average cost
of capital. Cost of Debt = 7.0%, Tax rate = 40%, Current Stock
Price = $27.15, Long Run Growth rate = 4.4%, Next Year's Dividend =
$1.88. Show your answer to the nearest .1%. Do not use the % sign
in your answer. Enter your answer as a whole number, thus 9.2%...
A company has determined that its optimal capital structure consists of 40 percent debt and 60...
A company has determined that its optimal capital structure
consists of 40 percent debt and 60 percent equity. Given the
following information, calculate the firm's weighted average cost
of capital. Cost of Debt = 7.0%, Tax rate = 40%, Current Stock
Price = $23.72, Long Run Growth rate = 3.8%, Next Year's Dividend =
$2.26. Show your answer to the nearest .1%. Do not use the % sign
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Capital Structure Debt 40% Interest rate 5% Tax Rate 26% Equity 60% Risk Free rate 6%...
Capital Structure
Debt
40%
Interest rate
5%
Tax Rate
26%
Equity
60%
Risk Free rate
6%
RM
13%
Beta
1%
Working capital
10% next year's sales
No terminal cash flows
Project 1
Capital investment
1,000,000
Year
Revenues
Expenses
1
780,000
585,000
2
799,500
599,625
3
819,488
614,616
4
839,957
629,981
5
860,974
645,731
6
882,498
661,874
7
904,561
678,421
8
927,175
695,381
Instructions
a) Compute the cost of debt financing
b) Compute the cost of equity financing using the
capital...
Capital Structure Debt 40% Interest rate 5% Tax Rate 26% Equity 60% Risk Free rate 6%...
Capital Structure
Debt
40%
Interest rate
5%
Tax Rate
26%
Equity
60%
Risk Free rate
6%
RM
13%
Beta
1%
Working capital
10% next year's sales
No terminal cash flows
Project 1
Capital investment
1,000,000
Year
Revenues
Expenses
1
850,000
680,000
2
871,250
697,000
3
893,031
714,425
4
915,357
732,286
5
938,241
750,593
6
961,697
769,358
7
985,739
788,592
8
1,010,383
808,306
Instructions
a) Compute the cost of debt financing
b) Compute the cost of equity financing using the
capital...
Capital Structure Debt 40% Interest rate 5% Tax Rate 26% Equity 60% Risk Free rate 6%...
Capital Structure
Debt
40%
Interest rate
5%
Tax Rate
26%
Equity
60%
Risk Free rate
6%
RM
13%
Beta
1%
Working capital
10% next year's sales
No terminal cash flows
Project 1
Capital investment
1,000,000
Year
Revenues
Expenses
1
780,000
585,000
2
799,500
599,625
3
819,488
614,616
4
839,957
629,981
5
860,974
645,731
6
882,498
661,874
7
904,561
678,421
8
927,175
695,381
Instructions
a) Compute the cost of debt financing
b) Compute the cost of equity financing using the
capital...
Air France Company has a target capital structure that consists of 40% debt, and 60% equity,...
Air France Company has a target capital structure that
consists of 40% debt, and 60% equity, the company is considering a
project (capital budget) that costs $12,000,000 to launch five new
Boeing Airplanes.
Also the company has the following information:
Net income $8,800,000
Total sales $36,825,000
Earnings Per Share $4.4
Price per share $68
1- The equity needed for the capital budget is: *
$4,800,000
$7,200,000
$5,280,000
$3,520,000
None of the above
2- If the company needs to expand its...
David Ortiz Motors has a target capital structure of 40% debt and 60% equity.
Managerial Finance 650Problem 9-08 (WACC)David Ortiz Motors has a target capital structure of 40% debt
and 60% equity. The yield to maturity on the company's outstanding
bonds is 10%, and the company's tax rate is 25%. Ortiz's CFO has
calculated the company's WACC as 10.2%. What is the company's cost
of equity capital?Round your answer to the nearest whole number.
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