User Account

All Pages

Cost of debt the promised rate of return

Assignment Help Finance Basics
Reference no: EM131725594

XiGo ?nances by both debt and equity. Its debt sells at the price 100, and the face value is 108. However, XiGo may default with probability 0.1, in which case it will pay back its debt holder 98.

(a) What is XiGo's cost of debt? [Hint: is XiGo's cost of debt the promised rate of return or the expected rate of return to the debt holder?]

(b) Suppose that XiGo's cost of equity is 11%. If it ?nances half of its funds by debt and half of its funds by equity, what is XiGo's WACC?

Reference no: EM131725594

Questions Cloud

Forecasting and projections important : How financial forecasting is essential to the strategic growth of a firm. Why are things like forecasting and projections important?
Explanation of what you are investigating and why : ECN 215 - Econometrics Project. The project itself should be structured as follows: Introduction: An explanation of what you're investigating and why
Describe the type of business in which intel operates : What type of audit opinion was given for the financial statements and the internal financial controls of Intel? Explain the key items discussed in the audit.
Estimated the expected rate of return to shareholders : Omega Corporation has 10.4 million shares outstanding, now trading at $59 per share. The firm has estimated the expected rate of return to shareholders.
Cost of debt the promised rate of return : What is XiGo's cost of debt? [Hint: is XiGo's cost of debt the promised rate of return or the expected rate of return to the debt holder?]
How the prosecution of a trade secret is accomplished : Describe how the investigation and prosecution of the misappropriation of a trade secret is accomplished without divulging the trade secret.
Describe steps of comprehensive financial statement analysis : Eastman Kodak Comprehensive Analysis Case Using the Financial Statement Analysis Template Each chapter in the textbook contains a continuation of this problem.
Compute fast debt ratio-interest-bearing debt ratio : Compute Fast's debt ratio and interest-bearing debt ratio.
Why does the free-rider problem occur in the debt market : Explain the principal-agent problem as it pertains to equity contracts. Why does the free-rider problem occur in the debt market?

Reviews

Write a Review

Finance Basics Questions & Answers

  What is value of the interest tax shield when firm borrrows

What effect does financial leverage have on the expected level and the variability of a firm's EPS and ROE?

  Calculate the firm weighted average cost of capital

Calculate the firm's weighted average cost of capital where the firm's borrowing rate on debt is 7.9 percent, it faces a 34 percent tax rate

  What is its self-supporting growth rate

How large a sales increase can the company achieve without having to raise funds externally; that is, what is its self-supporting growth rate?

  Cranberry corp. has two divisions of equal size

Cranberry Corp. has two divisions of equal size: a computer manufacturing division and a data processing division. Its CFO believes that stand-alone data processor companies typically have a WACC of 8%, while stand-alone computer manufacturers typica..

  List the ten largest countries by value of foreign

List the ten largest countries by value of Foreign Direct Investment in Australian in the years 2011 and 2014. You need to provide the list of countries as well as the amount of FDI invested in AUD

  Suppose that tapdance incs capital structure features 70

suppose that tapdance inc.s capital structure features 70 percent equity 30 percent debt and that its before-tax cost

  Problem related to redemption value of the bond

A government bond is currently selling for $900 and pays $75 per year in interest for nine years when it matures.

  Use the arithmetic average

What rate of return would you expect on a 5-year Treasury security, assuming the pure expectations theory is valid? Disregard cross-product terms, i.e., if averaging is required, use the arithmetic average.

  What are the three most important determinants of a firm

What are the three most important determinants of a firm’s return on stockholders’ equity?

  Analyze the effectiveness of three individuals

Analyze the effectiveness of these three individuals. How profitable are the firms they head in relation to others in the industry?

  Lifetime tt of the product

You purchase a certain product. The manual states that the lifetime TT of the product, defined as the amount of time (in years) the product works properly until it breaks down, satisfies

  Gem systems has recently issued preferred stock the stock

gem systems has recently issued preferred stock. the stock has a 12 annual dividend based on a par value of 100 per

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!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

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