User Account

All Pages

Estimate optimal debt ratio using cost of capital approach

Assignment Help Finance Basics
Reference no: EM131690109

Question: Timberland Inc., a manufacturer and retailer of footwear and sportswear, is considering is highly levered status. In 1995, the firm had $ 237 million in market value of debt outstanding, and 11 million shares outstanding at $ 19.88 per share. The firm had earnings before interest and taxes of $ 44 million, a book value of capital of $ 250 million and a tax rate of 37%. The treasury bond rate is 7.88%, and the stock has a beta of 1.26. The following table summarizes the estimated bond ratings and interest rates at different levels of debt for Timberland -

1936_1.png

a. Estimate the optimal debt ratio, using the cost of capital approach.

b. Estimate the optimal debt ratio, using the return differential approach.

c. Will the two approaches always give you identical results? Why or why not?

Reference no: EM131690109

Questions Cloud

Is the company delivering six-sigma quality to its customers : Is the company delivering Six-Sigma quality to its customers? If not, then how much should standard deviation of process be reduced to get Six Sigma quality?
Why is the optimal debt ratio for reebok so high : In 1995, an analysis of the capital structure of Reebok provided the following results on the weighted average cost of capital and firm value.
Criminal justice professor has assigned a group project : criminal justice professor has assigned a group project in which you are to describe "the benefits of smart policing in the twenty-first century
Describe the various components of medicare : Describe the various components of Medicare, and what each part does. What are the pros and cons of these components, and what needs improvement?
Estimate optimal debt ratio using cost of capital approach : Timberland Inc., a manufacturer and retailer of footwear and sportswear, is considering is highly levered status. In 1995, the firm had $ 237 million in market.
Define the two constructs of stereotyping and prejudice : Define the two constructs of Stereotyping and Prejudice in adequate detail. Next, explain three types of partiality
Total percentage of error-free product manufactured : The production process for a video game console has 10 major steps. calculate the total percentage of error-free product manufactured.
What real-world contexts are included in the lesson : How was collaboration with other professionals, families, and/or community leaders included for this lesson? Describe the collaborative effort.
Operational differences between unmanned and manned platform : Identify and address some of the major operational differences between unmanned and manned platforms.

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

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: +91-977-207-8620

Phone: +91-977-207-8620

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

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