Question

In: Finance

Suppose E-M Corp. (EMC) has perpetual earnings before interest and taxes (EBIT) of $10 million per...

Suppose E-M Corp. (EMC) has perpetual earnings before interest and taxes (EBIT) of $10 million per year. E-M’s unlevered cost of equity is 12%. EMC is subject to a corporate tax rate of 40%. It has $30 million in permanent debt in its capital structure, and the (pre-tax) cost of debt is 7% (EAR).

What is the after-tax WACC of E-M Corp.?

Select one:

7.99%

9.12%

7.79%

12.00%

14.80%

9.68%

10.49%

8.58%

Solutions

Expert Solution

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

Unlev Inc., an unlevered firm, has perpetual expected earnings before interest and taxes of $6.6 million...
Unlev Inc., an unlevered firm, has perpetual expected earnings before interest and taxes of $6.6 million per year, a tax rate of 34.00% and a beta of 1.5. The risk-free rate is 3.75% and the market risk-premium is 5.50%. Management is considering buying some of its stock back through an issue of debt. The firm will be issuing 5,280 bonds at a coupon rate of 7.00%. The face value of a bond = $1,000. The bonds will be offered at...
What is Earnings Before Interest and Taxes-Earnings Per Share (EBIT-EPS) analysis? What is the indifference curve?...
What is Earnings Before Interest and Taxes-Earnings Per Share (EBIT-EPS) analysis? What is the indifference curve? How is risk factored into the EBIT-EPS analysis? What are basic shortcomings of EBIT's analyses?
1. The Awesome Fun Conglomerate has earnings before interest and taxes (EBIT) of $58,218 and net...
1. The Awesome Fun Conglomerate has earnings before interest and taxes (EBIT) of $58,218 and net income (NI) of $4,042. The tax rate is 24 percent. What is the times interest earned ratio? A. 0.08 B. 1.10 C. 8.90 D. 2.49 E. 1.26 2. Global Logistics has sales of $783,200, cost of goods sold of $312,900, and inventory of $174,315. What is the inventory turnover rate? A. 17.37 times B. .9 times C. 2.71 times D. 3.4 times E. 1.79...
NDR, Inc., an unlevered firm, has expected earnings before interest and taxes of $2 million per...
NDR, Inc., an unlevered firm, has expected earnings before interest and taxes of $2 million per year. NDR's tax rate is 40%, and the market value is V=E=$12 million. The stock has a beta of 1.0, and the risk free rate is 9%. [Assume that E(Rm)- Rf = 6%]. Management is considering the use of debt; debt would be issued and used to buy back stock, and the size of the firm would remain constant. The default free interest rate...
9/15 Victoria Enterprises expects earnings before interest and taxes (EBIT ) next year of $2.4 million....
9/15 Victoria Enterprises expects earnings before interest and taxes (EBIT ) next year of $2.4 million. Its depreciation and capital expenditures will both be $ 298,000, and it expects its capital expenditures to always equal its depreciation. Its working capital will increase by $47,000 over the next year. Its tax rate is 40%. If its WACC is 8% and its FCFs are expected to increase at 6% per year in perpetuity, what is its enterprise value? the company's enterprise value...
Alpha Corporation has earnings before interest and tax (EBIT) per annum in perpetuity of $200,000. The...
Alpha Corporation has earnings before interest and tax (EBIT) per annum in perpetuity of $200,000. The tax rate is 30%. The firm is funded $50,000 of debt and $150,000 of equity. The cost of equity is 18% and the cost of debt is 6%. Given the information above, what is the appropriate discount rate if earnings before interest and tax (EBIT) are used to calculate the value of the firm? A. 20.79% B. 25.71% C. 18% D. 14.55% E. None...
Alpha Corporation has earnings before interest and tax (EBIT) per annum in perpetuity of $200,000. The...
Alpha Corporation has earnings before interest and tax (EBIT) per annum in perpetuity of $200,000. The tax rate is 30%. The firm is funded $50,000 of debt and $150,000 of equity. The cost of equity is 18% and the cost of debt is 6%. Given the information above, what is the appropriate discount rate if earnings after interest and before tax (EAIBT)is used to calculate the equity value of the firm? A. 20.79% B. 25.71% C. 18% D. 14.55% E....
Alpha Corporation has earnings before interest and tax (EBIT) per annum in perpetuity of $200,000. The...
Alpha Corporation has earnings before interest and tax (EBIT) per annum in perpetuity of $200,000. The tax rate is 30%. The firm is funded $50,000 of debt and $150,000 of equity. The cost of equity is 18% and the cost of debt is 6%. Given the information above, what is the appropriate discount rate if earnings before interest and after tax (EBIAT) are used to calculate the value of the firm? A. 20.79% B. 25.71% C. 18% D. 14.55% E....
Halogen Inc. is an unlevered firm, has expected earnings before interest and taxes of $2 million...
Halogen Inc. is an unlevered firm, has expected earnings before interest and taxes of $2 million per yearHalogen Inc tax rate is 40%, and the market value is V=E $12 million. The stock has a beta of 1.0, and the risk free rate is 9%. Assume that E(Rm)-Rf-6%). Management is considering the use of debt; debt would be issued and used to buy back stock, and the size of the firm would remain constant. The default free interest rate on...
A firm has generated $150 million in earnings before interest and taxes last year and expects...
A firm has generated $150 million in earnings before interest and taxes last year and expects these earnings to grow 10% a year for the next 3 years. The firm is expected to generate a return on capital of 20% on new investments for the next 3 years, and there is no efficiency growth. After year 3, the firm will be in stable growth, growing 3% a year in perpetuity, with a return on capital of 12% and a cost...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT