What is your estimate of the cost of equity capital for xyz

Assignment Help Finance Basics
Reference no: EM13683550

1. XYZ's current capital structure is comprised of 20% debt and 80% equity (based on market values). XYZ's equity beta (based on its current level of debt ?nancing) is 1.25, and its debt beta is 0.35. Also, the risk-free rate of interest is currently 4% on long-term government bonds. XYZ's investment banker advised the ?rm that, according to her estimates, the market risk premium is 5.5%.

a. What is your estimate of the cost of equity capital for XYZ (based on the CAPM)?

b. If XYZ's marginal tax rate is 35%, what is the ?rm's overall weighted average cost of capital (WACC)?

c. XYZ is considering a major expansion of its current business operations. The ?rm's investment banker estimates that XYZ will be able to borrow up to 40% of the needed funds and maintain its current credit rating and borrowing cost. Estimate the WACC for this project.

Reference no: EM13683550

Questions Cloud

Use the profitability index (pi) decision rule to evaluate : Use the Profitability Index (PI) decision rule to evaluate
What is the current bond price : Zevon, inc. has 9 percent coupon bonds on the market that have 8 years left to maturity. the bonds make annual payments. if the YTM on these bonds is 7 percent , what is the current bond price?
Why do you suppose that the market value of acme : Why do you suppose that the market value of Acme Chemical's bonds has risen following the firm's victory in appeals court?
What is the promised yield to maturity based on the terms : What is the promised yield to maturity based on the terms suggested by the investment banker?
What is your estimate of the cost of equity capital for xyz : What is your estimate of the cost of equity capital for XYZ
What is the yield to maturity to the bondholders : What is the yield to maturity to the bondholders?
What is the market price of the bond : A tax-exempt bond was recently issued an annual 10% coupon rate and matures 15 years from today. The par value of the bond is $1000. If the required market rates at 10%, what is the market price of the bond.
Corporate decision making : Corporate Decision Making
Specification for observing angles of an 8-sided polygon : Specification for observing angles of an 8-sided polygon limit the total angular misclosure to E=6". How accurately must each angle be observed?

Reviews

Write a Review

Finance Basics Questions & Answers

  If the markets expected return is 13 percent the risk-free

assuming the capm applies if the markets expected return is 13 percent the risk-free rate is 8 percent and stock as

  Speculating with currency futures

Speculating with Currency Futures: Assume that a March futures contract on the Mexican Peso was available in January for $.09 per unit. Also assume that forward contracts were available for the same settlement date at a price of $0.092 per peso.

  Since then it paid a 330 per share dividend last year the

hillcom corp stock was 75.80 per share at the end of last year. since then it paid a 3.30 per share dividend last

  Explain how earnings management affects earnings quality

explain how earnings management affects earnings quality. how is earnings management distinguished from fraudulent

  How much should you pay now for the land

You estimate that you can sell the land three years from now at $25,000 per arce. How much should you pay now for the land if the required rate of return is 25%?

  What is the taxable equivalent yield on a municipal bond

What's the taxable equivalent yield on a municipal bond with a yield to maturity of 8.50 percent for an investor in the 28 percent marginal tax bracket? (Round your answer to 2 decimal places.)

  The portfolio manager told the prospective client that she

at a meeting between a portfolio manager and a prospective client the portfolio manager stated that her firms bond

  What is the target stock price in one year

Earnings are expected to grow at 17 percent for the next year. Using the company's historical average PE as a benchmark, what is the target stock price in one year?

  Describing yield curve predictor

Discuss ways in which an investor can take advantage of the flat or inverted yield curve. Provide three current, specific real-world examples in your discussion.

  Many people shy away from careers in selling often because

many people shy away from careers in selling often because they think they are not outgoing enough or because

  Calculate the equity capital ratio

Tenth National Bank has common stock of $2 million, retained earnings of $5 million, loan loss reserves of $3 million, and subordinated notes outstanding in the amount of $4 million. Total bank assets are $105 million. Using Excel please calculate..

  Find the wacc of company a

The firm's bonds have a face value of $7 million and sell at a price of 135% of face value. the yield to maturity on the bonds is 10%, and the firm's tax rate is 35%. find the wacc of company a.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd