XYZ company has a capital structure made up of 35 percent debt and 65 percent common...

XYZ company has a capital structure made up of 35 percent debt and 65 percent common equity. Their bonds have a $1,000 par value, a 12 percent coupon, paid semiannually, a current maturity of 20 years, and sell for $1,025. Their beta is 2.2, the risk-free rate is 3 percent, and the market risk premium is 6 percent. The company will pay a dividend of $2.00 next year and these dividends are expected to grow at 5.089% forever. The firm’s stock price is $18.00. The firm's marginal tax rate is 40 percent. Calculate the weighted average cost of capital (WACC).

Solutions

Expert Solution

jeff jeffy answered 1 month ago

Next > < Previous

Related Solutions

Pearson Motors has a target capital structure of 35% debt and 65% common equity, with no...

Pearson Motors has a target capital structure of 35% debt and 65% common equity, with no preferred stock. The yield to maturity on the company's outstanding bonds is 8%, and its tax rate is 40%. Pearson's CFO estimates that the company's WACC is 13.10%. What is Pearson's cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places. %

Kahn Inc. has a target capital structure of 65% common equity and 35% debt to fund...

Kahn Inc. has a target capital structure of 65% common equity and 35% debt to fund its $11 billion in operating assets. Furthermore, Kahn Inc. has a WACC of 15%, a before-tax cost of debt of 12%, and a tax rate of 25%. The company's retained earnings are adequate to provide the common equity portion of its capital budget. Its expected dividend next year (D1) is $2, and the current stock price is $32. a. What is the company's expected...

Kahn Inc. has a target capital structure of 65% common equity and 35% debt to fund...

Kahn Inc. has a target capital structure of 65% common equity and 35% debt to fund its $8 billion in operating assets. Furthermore, Kahn Inc. has a WACC of 12%, a before-tax cost of debt of 11%, and a tax rate of 25%. The company's retained earnings are adequate to provide the common equity portion of its capital budget. Its expected dividend next year (D1) is $2, and the current stock price is $29. What is the company's expected growth...

has a target capital structure of 65% common equity and 35% debt to fund its $10...

has a target capital structure of 65% common equity and 35% debt to fund its $10 billion in operating assets. Furthermore, Kahn Inc. has a WACC of 16%, a before-tax cost of debt of 12%, and a tax rate of 25%. The company's retained earnings are adequate to provide the common equity portion of its capital budget. Its expected dividend next year (D1) is $2, and the current stock price is $25. What is the company's expected growth rate? Do...

Kahn Inc. has a target capital structure of 65% common equity and 35% debt to fund...

Kahn Inc. has a target capital structure of 65% common equity and 35% debt to fund its $10 billion in operating assets. Furthermore, Kahn Inc. has a WACC of 16%, a before-tax cost of debt of 12%, and a tax rate of 40%. The company's retained earnings are adequate to provide the common equity portion of its capital budget. Its expected dividend next year (D1) is $3, and the current stock price is $35. What is the company's expected growth...

Palencia Paints Corporation has a target capital structure of 35% debt and 65% common equity, with...

Palencia Paints Corporation has a target capital structure of 35% debt and 65% common equity, with no preferred stock. Its before-tax cost of debt is 8%, and its marginal tax rate is 40%. The current stock price is P0$22.00. The last dividend was D0$2.25, and it is expected to grow at a 5% constant rate. What is its cost of common equity and its WACC?

Palencia Paints Corporation has a target capital structure of 35% debt and 65% common equity, with...

Palencia Paints Corporation has a target capital structure of 35% debt and 65% common equity, with no preferred stock. Its before-tax cost of debt is 9%, and its marginal tax rate is 40%. The current stock price is P0 = $28.50. The last dividend was D0 = $3.00, and it is expected to grow at a 7% constant rate. What is its cost of common equity and its WACC? Round your answers to two decimal places. Do not round your...

1. Kramerica Industries has a capital structure consisting of 65% debt and 35% common stock. The...

1. Kramerica Industries has a capital structure consisting of 65% debt and 35% common stock. The company’s CFO has obtained the following information: o The before-tax YTM on the company's bonds is 8.5%. o Kramerica will pay a $3.00 dividend on its common stock and the dividend is expected to grow at a constant rate of 6% a year. The common stock currently sells for $50 a share. o Assume the firm will be able to use retained earnings to...

Company XYZ has a capital structure that consists of debt, common stocks and preferred stocks. The...

Company XYZ has a capital structure that consists of debt, common stocks and preferred stocks. The company has issued 15-year, 12% semiannual coupon bond sells for $1,153.72. Its stock currently pays a $2 dividend per share and the stock’s price is currently $24.75. The company’s ROE is 15% and retaining 60% of its earnings.its tax rate is 35%; The weight of debt is 30%, weight of common equity is 40% and weight of preferred equity is 10%. The price of...

The Giant Machinery has the current capital structure of 65% equity and 35% debt. Its net...

The Giant Machinery has the current capital structure of 65% equity and 35% debt. Its net income in the current year is $250,000. The company is planning to launch a project that will requires an investment of $175,000 next year. Currently the share of Giant machinery is $25/share. Required: a) How much dividend Giant Machinery can pay its shareholders this year and what is dividend payout ratio of the company? Assume the Residual Dividend Payout Policy applies. b) If the...

Subjects