Question

In: Finance

Rogot Instruments makes fine violins and cellos. It has ​$1.9 million in debt​ outstanding, equity valued...

Rogot Instruments makes fine violins and cellos. It has ​$1.9 million in debt​ outstanding, equity valued at ​$2.2 million and pays corporate income tax at rate 35 % . Its cost of equity is 10 % and its cost of debt is 6 % .

a. What is​ Rogot's pretax​ WACC? (Round by two decimals)

b. What is​ Rogot's (effective​ after-tax) WACC? (Round by two decimals)

Solutions

Expert Solution

I have calculated both the pre tax and after tax wacc for Rogot Instruments. I have done the detailed calculation along with formulas too in the below pictures. You may ask any doubts in the comment section.

I hope this helps :)

Please press the thumbs up button if you found it useful.

Thanks & Regards

jeff jeffy answered 6 months ago
Next > < Previous

Related Solutions

Rogot Instruments makes fine violins and cellos. It has ​$1.7 million in debt​ outstanding, equity valued...
Rogot Instruments makes fine violins and cellos. It has ​$1.7 million in debt​ outstanding, equity valued at ​$2.1 million and pays corporate income tax at rate 36 % . Its cost of equity is 14 % and its cost of debt is 6 % . a. What is​ Rogot's pretax​ WACC? b. What is​ Rogot's (effective​ after-tax) WACC?
River Enterprises has ​$500 million in debt and 1818 million shares of equity outstanding. Its excess...
River Enterprises has ​$500 million in debt and 1818 million shares of equity outstanding. Its excess cash reserves are $16 million. They are expected to generate ​$206 million in free cash flows next year with a growth rate of 22​% per year in perpetuity. River​ Enterprises' cost of equity capital is 12​%. After analyzing the​ company, you believe that the growth rate should be 33​% instead of 22​%. How much higher​ (in dollars) would the price per share be if...
Acme Corp has a target debt/equity ratio of 0.35. It was $350 million in bonds outstanding...
Acme Corp has a target debt/equity ratio of 0.35. It was $350 million in bonds outstanding with a yield of 7% and 50 million shares of stock outstanding with a current market price of $20 per share. The company’s beta is 1.32 and the risk-free rate of interest is 4% with a market risk premium of 6%. The firm has a tax rate of 25%. The company is looking to raise $250 million to build a second factory. The new...
State two features regarding debt and equity instruments that result in equity instruments having a higher...
State two features regarding debt and equity instruments that result in equity instruments having a higher cost of capital The Australian Treasury is issuing 10-year bonds that have a face value of $100 paying half-yearly coupons at 4% p.a. The bonds mature at par. Spencer purchases the bonds at the issue date that are priced at a yield to maturity of 5.2% p.a. Calculate the size of each coupon payment giving your answer correct to the nearest cent. The Australian...
1. PQR Inc. has a debt-equity ratio of 2 and one million shares outstanding. The firm’s...
1. PQR Inc. has a debt-equity ratio of 2 and one million shares outstanding. The firm’s pro-forma Statement of Comprehensive Income for the next year indicates that its net income will be $650,000. If the company proposes to invest 60% of its earnings in projects, what is the dividend per share? Select one: a. $0.34 b. $0.43 c. $0.52 d. $0.90 e. $1.20 2. In terms of changes in the number of shares outstanding, a 25% stock dividend is equivalent...
PQR Inc. has a debt-equity ratio of 2 and one million shares outstanding. The firm’s pro-forma...
PQR Inc. has a debt-equity ratio of 2 and one million shares outstanding. The firm’s pro-forma Statement of Comprehensive Income for the next year indicates that its net income will be $650,000. If the company proposes to invest 60% of its earnings in projects, what is the dividend per share? Select one: a. $0.34 b. $0.43 c. $0.52 d. $0.90 e. $1.20
The common stock and debt of Northern Sludge are valued at $66 million and $34 million,...
The common stock and debt of Northern Sludge are valued at $66 million and $34 million, respectively. Investors currently require a return of 15.6% on the common stock and a return of 8.1% on the debt. If Northern Sludge issues an additional $17 million of common stock and uses this money to retire debt, what happens to the expected return on the stock? Assume that the change in capital structure does not affect the interest rate on Northern’s debt and...
The common stock and debt of Northern Sludge are valued at $120 million and $80 million,...
The common stock and debt of Northern Sludge are valued at $120 million and $80 million, respectively. Investors currently require a 14% return on the common stock and an 8% return on the debt. Assume that the change in capital structure does not affect the risk of the debt and that there are no taxes. If Northern Sludge issues an additional $15 million of common stock and uses this money to retire debt, what is the expected return on the...
The common stock and debt of Northern Sludge are valued at $50 million and $20 million,...
The common stock and debt of Northern Sludge are valued at $50 million and $20 million, respectively. Investors currently require a return of 18% on the common stock and a return of 10% on the debt. If Northern Sludge issues an additional $5 million of common stock and uses this money to retire debt, what happens to the expected return on the stock? Assume that the change in capital structure does not affect the risk of the debt and that...
Avicorp has a $12.8 million debt issue​ outstanding, with a 5.9% coupon rate. The debt has​...
Avicorp has a $12.8 million debt issue​ outstanding, with a 5.9% coupon rate. The debt has​ semi-annual coupons, the next coupon is due in six​ months, and the debt matures in five years. It is currently priced at 93% of par value. **Answer MUST be rounded to FOUR decimal places** a. What is​ Avicorp's pre-tax cost of​ debt? Note: Compute the effective annual return. ROUND TO 4 DECIMAL PLACES b. If Avicorp faces a 40% tax​ rate, what is its​...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT