Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Hi There, could you please help me explaining how to resolve this problems. thank you! Company Inc. has debt with both a face and a

Hi There, could you please help me explaining how to resolve this problems. thank you!

Company Inc. has debt with both a face and a market value of $3,000. This debt has a coupon rate of 7% and pays interest annually. The expected earnings before interest and taxes is $1,200, the tax rate is 34%, and the unlevered cost of capital is 12%. What is the firm's cost of equity?

a. 13.25% b. 13.89% c. 13.92% d. 14.14% e. 14.25%

Charles' Distributors have a cost of equity of 13.84% and an unlevered cost of capital of 12%. The company has $5,000 in debt that is selling at par value. The levered value of the firm is $12,000 and the tax rate is 34%. What is the pre-tax cost of debt?

a. 7.92% b. 8.10% c. 8.16% d. 8.84% e. 9.00%

Rosita's has a cost of equity of 13.8% and a pre-tax cost of debt of 8.5%. The debt-equity ratio is .60 and the tax rate is .34. What is Rosita's unlevered cost of capital?

a. 8.83% b. 12.30% c. 13.97% d. 14.08% e. 14.60%

Your firm has a $250,000 bond issue outstanding. These bonds have a 7% coupon, pay interest semiannually, and have a current market price equal to 103% of face value. What is the amount of the annual interest tax shield given a tax rate of 35%?

a. $6,125 b. $6,309 c. $9,500 d. $17,500 e. $18,025

A firm has debt of $5,000, equity of $16,000, a leveraged value of $8,900, a cost of debt of 8%, a cost of equity of 12%, and a tax rate of 34%. What is the firm's weighted average cost of capital?

a. 7.29% b. 7.94% c. 8.87% d. 10.40% e. 11.05%

A firm has zero debt in its capital structure. Its overall cost of capital is 10%. The firm is considering a new capital structure with 60% debt. The interest rate on the debt would be 8%. Assuming there are no taxes or other imperfections, its cost of equity capital with the new capital structure would be ______ .

a. 9% b. 10% c. 13% d. 14% e. None of the above.

A firm has a debt-to-equity ratio of 1. Its cost of equity is 16%, and its cost of debt is 8%. If there are no taxes or other imperfections, what would be its cost of equity if the debt-to-equity ratio were 0?

a. 8% b. 10% c. 12% d. 14% e. 16%

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Analysis for Financial Management

Authors: Robert C. Higgins

10th edition

007803468X, 978-0078034688

More Books

Students also viewed these Finance questions