ABC Corporation has 12 million shares outstanding, now trading at 65£ per share. The firm has...

ABC Corporation has 12 million shares outstanding, now trading at 65£ per share. The firm has estimated the expected rate of return to shareholders at about 15%. It has also issued 5-year bonds of 400 million at an interest rate of 8%. It pays tax at a marginal rate of 35%.

What is ABC’s after-tax WACC?

Compute the present value of interest tax shields generated by the 5-year bonds

A customer has ordered goods from ABC generating a present value of £4,500. The present value of production costs is £3,000. Assuming there is no possibility of repeat orders, what is the minimum level of P (probability that the customer will pay up) at which ABC is justified in extending credit?

How is Modigliani-Miller's Proposition I modified when taxes and financial distress costs are considered?

Expert Solution

Please refer to the attachment

jeff jeffy answered 2 years ago

Omega Corporation has 10.9 million shares outstanding, now trading at $64 per share. The firm has...

Omega Corporation has 10.9 million shares outstanding, now trading at $64 per share. The firm has estimated the expected rate of return to shareholders at about 15%. It has also issued long-term bonds at an interest rate of 6%. It pays tax at a marginal rate of 34%. Assume a $245 million debt issuance. a. What is Omega’s after-tax WACC? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Omega’s after-tax WACC % b. How much higher...

Omega Corporation has 11.7 million shares outstanding, now trading at $48 per share. The firm has...

Omega Corporation has 11.7 million shares outstanding, now trading at $48 per share. The firm has estimated the expected rate of return to shareholders at about 10%. It has also issued $165 million of long-term bonds at an interest rate of 9%. It pays tax at a marginal rate of 34%. a. What is Omega’s after-tax WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) After-tax WACC = _______% b. What would...

ABC Corporation is financed entirely by equity, has 1 million shares outstanding trading at $100 per...

ABC Corporation is financed entirely by equity, has 1 million shares outstanding trading at $100 per share. Depending on the state of the economy its EBIT will be recession expected expansion 8 million 12 million 16 million XYZ Corporation has exactly the same EBIT in each economy state, but has $40 million of debt outstanding with an 8% interest rate. It also has 600,000 shares of common stock outstanding priced at $95 per share. Neither firm pays taxes. There are...

Piper Co has 40 million shares outstanding, trading for $10 per share. In addition, the firm...

Piper Co has 40 million shares outstanding, trading for $10 per share. In addition, the firm has $106 million in outstanding debt. Suppose the equity cost of capital is 15%, its debt cost of capital is 8% and the tax rate is 40%: a) What is the WACC? b)If the risk free rate is 15% and the Rm is 9%, what are the leveraged and unleveraged betas?

"The Bold and Beautiful company has 5 million shares outstanding, now trading at £30 per share. The firm has estimated the expected rate of return

"The Bold and Beautiful company has 5 million shares outstanding, now trading at £30 per share. The firm has estimated the expected rate of return to equity at 8%. It has also issued long-term debt securities at an interest rate of 6%. Assume that this firm has issued a £100 million bond.a. What is firm's WACC?b. If the firm pays tax at a marginal rate of 30%, what is its after-tax WACC? c. Briefly discuss the Modigliani-Miller propositions with regard...

Kahuku Corporation has 100 million shares outstanding trading at $20 per share. The company announces its...

Kahuku Corporation has 100 million shares outstanding trading at $20 per share. The company announces its intention to raise $150 million by selling new shares. a. What do market signaling studies suggest will happen to Kahuku’s stock price on the announcement date? Why? b. How large a gain or loss in aggregate dollar terms do market signaling studies suggest existing Kahuku shareholders will experience on the announcement date? c. What percentage of the value of Kahuku’s existing equity prior to...

GrandeCo has earnings per share of £2. It has 11 million shares outstanding and is trading...

GrandeCo has earnings per share of £2. It has 11 million shares outstanding and is trading at £17 per share. GrandeCo is thinking of buying ChicoCo, which has earnings per share of £1.25, 7.3 million shares outstanding, and a price per share of £12.75. GrandeCo will pay for ChicoCo by issuing new shares. There are no expected synergies from the transaction. If GrandeCo offers an exchange ratio such that, at current pre-announcement share prices for both firms, the offer represents...

A firm has 5 million shares outstanding with a market price of $35 per share. The...

A firm has 5 million shares outstanding with a market price of $35 per share. The firm has $15 million in extra cash (short-term investments) that it plans to use in a stock repurchase; the firm has no other financial investments or any debt. What is the firm's value of operations after the repurchase? Enter your answer in millions. For example, an answer of $1.23 million should be entered as 1.23, not 1,230,000. Round your answer to two decimal places....

Chisel Corporation has 2.000 million shares outstanding at aprice per share of $2.00. If the...

Chisel Corporation has 2.000 million shares outstanding at a price per share of $2.00. If the debt-to-equity ratio is 1.00 and total book value of debt equals $12,250,000, what is the market-to-book ratio for Chisel Corporation? (Round answer to 2 decimal places, e.g.12.25.)Market-to-book ratio

Firm AAA’s stock is currently trading at $2 per share. The Total Shares Outstanding of Firm...

Firm AAA’s stock is currently trading at $2 per share. The Total Shares Outstanding of Firm AAA is 3 billion. Based on this information is this a Mid-Cap firm, Micro-Cap firm, Large Cap firm, or small cap firm? Firm DDD has Current Assets = $50 and Current Liabilities = $100. Which of the following is the correct Current Ratio of this firm? a. 0.5 b. 0.005 c. 1 d. 2 Which of the following financial ratio is forward-looking: (I) Asset...

Question