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In: Finance
Defining capital structure weights) In August 2015 the capital structure of the Emerson Electric Corporation (EMR)...
Defining capital structure weights) In August 2015 the capital structure of the Emerson Electric Corporation (EMR) (measured in book and market values) was as follows: ($ Millions) Book Value Market Value Short-term debt $2 comma 607 $2 comma 607 Long-term debt 4 comma 224 4 comma 224 Common equity Modifying 8 comma 108 with underline Modifying 35 comma 789 with underline Total capital Modifying $ 14 comma 939 with double underline Modifying $ 42 comma 620 with double underline What weights should Emerson use when computing the firm's weighted average cost of capital? The appropriate weight of debt, w Subscript d, is nothing%. (Round to one decimal place.)
Solutions
jeff jeffy answered 1 year agoRelated Solutions
(Related to Checkpoint 15.1) (Calculating capital structure weights) Winchell Investment Advisors is evaluating the capital structure...
(Related to Checkpoint 15.1) (Calculating capital structure
weights) Winchell Investment Advisors is evaluating the capital
structure of Ojai Foods. Ojai's balance sheet indicates that the
firm has $48.26 million in total liabilities. Ojai has only
$40.15 million in short- and long-term debt on its balance
sheet. However, because interest rates have fallen dramatically
since the debt was issued, Ojai's short- and long-term debt has
a current market price that is 10 percent over its book value or
$44.17...
What is the WACC of the company using the book weights of capital structure?
A company’s Balance Sheet (in millions)
Assets Liabilities
& Equity
Current $20
Net
Fixed $80 Bonds
($1000
Par) 40
Preferred
stocks ($100 Par) 20
Total $100 Common
Stock ($1
par) 40
Total $100
The company's bonds have 15 years to mature, pay 12% coupon rate
semi-annually and comparable bonds' YTM is 14%.
The market price of the common stock is $3.25 per share. The
most recent dividend on the common stock was $0.85.
The company’s applicable tax rate is 30%....
Delta Corporation has the following capital structure: Cost (aftertax) Weights Weighted Cost Debt (Kd) 9.5...
Delta Corporation has the following capital structure:
Cost
(aftertax)
Weights
Weighted
Cost
Debt
(Kd)
9.5
%
30
%
2.85
%
Preferred stock
(Kp)
9.2
15
1.38
Common equity
(Ke) (retained earnings)
16.2
55
8.91
Weighted average cost of capital
(Ka)
13.14
%
a. If the firm has $22 million in retained
earnings, at what size capital structure will the firm run out of
retained earnings? (Enter your answer in millions of
dollars (e.g., $10 million should be entered as...
Delta Corporation has the following capital structure: Cost (aftertax) Weights Weighted Cost Debt (Kd) 6.1 %...
Delta Corporation has the following capital structure: Cost
(aftertax) Weights Weighted Cost Debt (Kd) 6.1 % 30 % 1.83 %
Preferred stock (Kp) 7.6 20 1.52 Common equity (Ke) (retained
earnings) 13.1 50 6.55 Weighted average cost of capital (Ka) 9.90 %
a. If the firm has $23 million in retained earnings, at what size
capital structure will the firm run out of retained earnings?
(Enter your answer in millions of dollars (e.g., $10 million should
be entered as "10").)...
Problem Set 8 Delta Corporation has the following capital structure: Cost (after tax) Weights Weighted Cost...
Problem Set 8
Delta Corporation has the following capital structure:
Cost (after tax)
Weights
Weighted Cost
Debt
9.1%
60%
Preferred stock
10.6%
5%
Common equity (retained earnings)
11.1%
35%
Weighted Average Cost of Capital
Calculate the weighted average cost of capital (WACC) and use it
for the cost of capital interest rate for the rest of this problem.
In other words, the WACC becomes the discount rate for the net
present value calculations.
Assume Delta has three different (mutually exclusive)...
On August 27, 2015, Celgene Corporation acquired all of the outstanding stock of Receptos, Inc., in...
On August 27, 2015, Celgene Corporation acquired all of the
outstanding stock of Receptos, Inc., in exchange for $7.6 billion
in cash. Referring to Celgene’s 2015 financial statements and its
July 14, 2015, press release announcing the acquisition, answer the
following questions regarding the Receptos acquisition.
Why did Celgene
acquire Receptos?
What accounting method
was used, and for what amount, to record the acquisition?
What amount did
Celgene include in pre-combination service compensation in the
total consideration transferred? What support...
Eco Plastics Company: The target capital structure for ECO is given by the weights in the following table:
Eco Plastics Company: The target capital structure for ECO is given by the weights in the following table:
Source of Capital
Weight
Long-term debt
30 %
Preferred stock
20
Common stock equity
50
Total
100 %
At the present time, Eco can raise debt by selling 20 year bonds with a $1,000 par value and a 10.5% annual coupon interest rate. Eco's corporate tax rate is 21%, and its bonds generally require an average discount of $45 per...
On August 3, 2015, Jeffrey Corporation purchased 3,800 shares of Kevin Company for $220,400. The following...
On August 3, 2015, Jeffrey Corporation purchased 3,800 shares of
Kevin Company for $220,400. The following information applies to
the stock price of Kevin Company:
Price
12/31/2015
$57
12/31/2016
$62
12/31/2017
$66
Kevin Company declares and pays cash dividends of $4 per share
on June 1 of each year.
1. Record the appropriate journal entries for:
August 04, 2015
December 31, 2015
June 01, 2016
December 31, 2016
June 01, 2017
December 31, 2017
2.
8/4/2015 Record the purchase of...
How do you compute the capital structure weights required for the WACC? What are two methods...
How do you compute the capital structure weights required for
the WACC?
What are two methods that can be used to compute the appropriate
discount rate when WACC isn’t appropriate?
What happens if we use the WACC as the discount rate for all
projects?
(Weighted average cost of capital) The capital structure for the Carion Corporation is provided here:The company...
(Weighted average cost of capital) The capital structure for
the Carion Corporation is provided here:The company plans to
maintain its debt structure in the future. If the firm has an
after-tax cost of debt of 5.3 percent, a cost of preferred stock
of 13.5 percent, and a cost of common stock of 18.6 percent, what
is the firm's weighted average cost of capital?
CAPITAL STRUCTURE ($000)
Bonds
$1,095
Preferred stock
279
Common stock
3,633
$5,007
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