Question
The following questions are already answered (answers are in bold). Can someone explain the process to get the answer? 1. Company 473's corporate tax rate
The following questions are already answered (answers are in bold). Can someone explain the process to get the answer?
1. Company 473's corporate tax rate is 40.2% and its current equity cost of capital is 3.9%. Company 473's debt holders require a return of 1.7% (which corresponds to Company 473's pre-tax cost of debt), and its debt-to-equity ratio is 0.6. What is Company 473's after-tax WACC?
Answer: 2.82 0.05
2. Suppose the risk-free rate is 0% and the expected market return is 10.7%. The stock of Company 573 has a beta with respect to the market of 1.38. Under the CAPM assumptions, what is the expected return on the stock of Company 573?
Answer: 14.77 0.05
3. Suppose Company 707 has no debt and an equity cost of capital of 9.9%. The average debt-to-value ratio for its industry is 35%. Assuming perfect capital markets, what would the firm's cost of equity be if it were to issue debt at an interest rate of 3.1% and repurchase shares to implement the average debt-to-value ratio of the industry?
Answer: 13.56 0.05
4. Company 365 currently has 57 million shares of stock outstanding at a price of 41.4 EUR per share. The company would like to raise money in connection with its contemplated acquisition of Company 810 and has announced a rights issue. Every existing shareholder will be sent one right per share of stock that he or she owns. Each right gives the holder the right to purchase on share at a price pf 29.5 EUR per share. Assuming that the rights issue is successful and that capital markets are perfect, what will the share price be after the rights issue?
Answer: 35.45 0.05
5. The closing price of Tesla's stock 504 USD on March 31, 2020. On August 31 of that year, Tesla implemented a 5:1 (five-for-one) stock split. Assuming that the price of Tesla on October 15, 2020 was 391.57 USD, what would be the return on an investment in Tesla's stock from March 31 to October 15, 2020?
Answer: 288.46 0.05
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