Question

In: Finance

Jonas Corp.’s capital structure is 60% debt and 40% equity. The company is evaluating a project...

Jonas Corp.’s capital structure is 60% debt and 40% equity. The company is evaluating a project involving a new OLED screen material called Duraglass. Keiko Ltd. is currently the only producer of Duraglass. Keiko’s beta is 0.9 and Keiko’s capital structure is 25% debt and 75% equity. The risk free-rate is 3%, the market premium is 7%, and Jonas’s after-tax cost of debt is 5%. What discount hurdle rate should Jonas apply to the new project? Use the proxy firm beta method.

Discount hurdle rate = ______________%

Solutions

Expert Solution

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

Bath Supplies Corp.’s capital structure is 60% debt and 40% equity. The company is planning to...
Bath Supplies Corp.’s capital structure is 60% debt and 40% equity. The company is planning to build a plant to manufacture a new type of organic toothpaste called Krud. Brightee Inc. produces only organic toothpaste. Brightee's beta is 1.2 and Brightee’s capital structure is 30% debt and 70% equity. The risk free-rate is 3% and the market premium is 7%. Bath Supplies’ after-tax cost of debt is 7%. What discount hurdle rate should Bath Supplies apply to the new plant?...
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...
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...
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...
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...
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...
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.
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...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT