David Ortiz Motors has a target capital structure of 40% debt and 60% equity. The yield...

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.

Expert Solution

10.2% = [40% * 10% * (1 - 25%)] + [60% * Cost of Equity)

10.2% = 3% + [60% * Cost of Equity)

[60% * Cost of Equity) = 7.2%

Cost of Equity = 12%

jeff jeffy answered 2 years ago

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.

Petro Co. has a target capital structure that consists of 60% debt, and 40% equity, the...

Petro Co. has a target capital structure that consists of 60% debt, and 40% equity, the company is considering a project (capital budget) that costs $1,500,000 for the coming year. It is forecasting net income of $800,000. 1- The equity needed for the capital budget is: * $900,000 $600,000 $480,000 $320,000 None of the above 2- If the company needs to expand its project, the dividend it can pay for shareholders is: * $0 $200,000 $320,000 $480,000 None of the...

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...

16. Taylor Technologies has a target capital structure that consists of 40% debt and 60% equity....

16. Taylor Technologies has a target capital structure that consists of 40% debt and 60% equity. The equity will be financed with retained earnings. The company’s bonds have a yield to maturity of 10%. The company’s stock has a beta = 1.1. The risk-free rate is 6%, the market risk premium is 5%, and the tax rate is 30%. The company is considering a project with the following cash flows: Project A Year Cash Flow 0 -$50,000 1 35,000 2...

Kahn Inc. has a target capital structure of 40% common equity and 60% debt to fund...

Kahn Inc. has a target capital structure of 40% common equity and 60% debt to fund its $12 billion in operating assets. Furthermore, Kahn Inc. has a WACC of 12%, a before-tax cost of debt of 9%, 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 $23. What is the company's expected growth...

Pearson Motors has a target capital structure of 30% debt and 70% common equity, with no...

Pearson Motors has a target capital structure of 30% debt and 70% common equity, with no preferred stock. The yield to maturity on the company's outstanding bonds is 11%, and its tax rate is 40%. Pearson's CFO estimates that the company's WACC is 14.00%. What is Pearson's cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places.

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. %

MABK Sdn Bhd has a target capital structure that consists of 60% common equity and 40%...

MABK Sdn Bhd has a target capital structure that consists of 60% common equity and 40% debt. In order to calculate MABK weighted average cost of capital, an analyst has accumulated the following information: The company’s bond will mature in 12 years; carry a coupon rate of 7.5% with interest to be paid semi-annually. The bonds have a face value of $1,000 and selling for $1,010.00 per unit. The company uses the CAPM to calculate the cost of common stock....

Pearson motors has a target capital structure of 30% debt and 70% common equity, with no preferred stock.

Pearson motors has a target capital structure of 30% debt and 70% common equity, with no preferred stock. The yield to maturity on the company’s out standing bonds is 9%, and its tax rate is 40%. Pearsons CFO estimates that the company’s WACC is 10.50%. What is Pearson’s cost of common equity?

Globe-Chem Co. has a capital structure that consists of 40% debt and 60% equity. The firm's...

Globe-Chem Co. has a capital structure that consists of 40% debt and 60% equity. The firm's current beta is 1.10, but managment wants to understand Globo-Chem Co.'s market risk without the effect of leverage. 1. If global-Chem has a 35% tax rate, what is its unlevered beta? a. 0.81 b. 0.77 c. 0.62 d. 0.92 Now consider this case of another company: U.S. Robotics Inc. has a current capital structure of 30% debt and 70% equity. Its current before tax...

Question