The firm is financed by 40% of debt and 60% of equity. It has the weigthed...

The firm is financed by 40% of debt and 60% of equity. It has the weigthed average cost of capital of 15%. The cost of equity is 25%. What is the cost of debt? Assume that there are no taxes.And think about another situation. The firm is financed by 40% of debt and 60% of equity. It has the weigthed average cost of capital of 15%. The cost of debt is 8%. What is the cost of equity? Assume that there are no taxes.Please answer the questions with two parts.

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jeff jeffy answered 2 years ago

Geronimo Corp is financed 60% with equity and 40% with debt.Currently, its debt has a...

Geronimo Corp is financed 60% with equity and 40% with debt. Currently, its debt has a before-tax yield to maturity of 5%. Geronimo's common stock has a beta of 1.75 and market risk premium is 8% while risk free rate is 1%. If the tax rate is 40%, what is Geronimo's weighted average cost of capital (WACC)?A. 7.40%B. 7.83%C. 10.20%D. 9.00%E. 11.47%

Now imagine that Tiger Pros is 60% financed with equity and 40% financed with debt. Cost...

Now imagine that Tiger Pros is 60% financed with equity and 40% financed with debt. Cost of equity is 16.5% and after-tax cost of debt is 11%. It has the same perpetual EBIT of $500 a year but has a $120 perpetual interest expense. The firm is subject to a 21% tax rate. What is the market value of Tiger Pros?

i) A company is financed 60% by debt and 40% by equity. The pre-tax cost of...

i) A company is financed 60% by debt and 40% by equity. The pre-tax cost of debt is currently 10%. The Finance Director has stated that the weighted average cost of capital for the company is 9.6%. What is the cost of equity? Assume the tax rate is 40%. a) 11.4% b) 9.8% c) 12% d) 15% ii) Ashley Ardern has been researching a vaccine for Covid-19. The cost of the research efforts has already amounted to $500,000. If Ashley...

Dahmen plc is financed by 60% debt and 40% equity. Dahmen would like to determine their...

Dahmen plc is financed by 60% debt and 40% equity. Dahmen would like to determine their weighted-average cost of capital (WACC) so this can be used to appraise their potential capital investment projects. Describe the WACC. (4 marks, maximum 200 words) You have been provided with the following information to allow you to determine Dahmen’s WACC Dahmen’s bond holders have a required yield of 9% Dahmen’s ordinary shares are currently priced at $40. The latest dividend of $4 per share...

A firm is financed with debt that has a market beta of 0.3 and equity that...

A firm is financed with debt that has a market beta of 0.3 and equity that has a market beta of 1.2. The risk-free rate is 3%, and the equity premium is 5%. The overall cost of capital for the firm is 8%. What is the firmʹs debt-equity ratio? a) 28.6% b) 25.0% c) 74.8% d) 25.2%

For a levered firm, firm’s assets are financed by equity and debt. That is, ?? =...

For a levered firm, firm’s assets are financed by equity and debt. That is, ?? = ?? + ?? , where ?? ,?? & ?? represents asset value, debt value and equity value at time ?. Suppose the firm makes no dividend payment and has a zero-coupon debt maturing at time ?. At maturity, if the value of the company asset is greater than the maturity value of the debt (?? > ??), the company will simply pay off the...

AHN is firm manufacturer. The firm is all-equity financed and has 40 million shares outstanding at...

AHN is firm manufacturer. The firm is all-equity financed and has 40 million shares outstanding at a price of $75 per share. AHN current cost of capital is 7.5%. The firm is considering to buy back $400 million in shares in the open market and to finance the repurchase by issuing bonds. AHN plans to maintain this capital structure indefinitely. At this level of debt, the bonds would be A-rated, and the firm would pay an interest rate of 4.5%.AHN's...

1. The cost of capital for a firm with a 60/40 debt/equity split, 2.93% cost of...

1. The cost of capital for a firm with a 60/40 debt/equity split, 2.93% cost of debt, 15% cost of equity, and a 35% tax rate would be 2. Complete the following sentence. The WACC _________________. Group of answer choices a. Is equal to the firm’s embedded debt cost times (1- the tax rate). b. Is directly observable in financial markets. c. Is the required return on any investments a firm makes that have a level of risk greater than...

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...

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