What is establishments wacc

Assignment Help Business Management

Reference no: EM1347342

The debt is yielding 7 percent, and the cost of equity is 14 percent. The tax rate is 35 percent. Investors expect this level of debt to be permanent.

a.What is Establishment's WACC?

b.Write out a market-value balance sheet assuming Establishment has no debt.

Costs of Financial Distress. For which of the following firms would you expect the costs of financial distress to be highest? Explain briefly.

c. A computer software company that depends on skilled programmers to produce new products.

d. A shipping company that operates a fleet of modern oil tankers.

Trade-Off Theory. Smoke and Mirrors currently has EBIT of $25,000 and is all-equity-financed. EBIT is expected to stay at this level indefinitely. The firm pays corporate taxes equal to 35 percent of taxable income. The discount rate for the firm's projects is 10 percent.

e. What is the market value of the firm?
f.Now assume the firm issues $50,000 of debt paying interest of 6 percent per year, using the proceeds to retire equity. The debt is expected to be permanent. What will happen to the total value of the firm (debt plus equity)?

g. Recompute your answer to (b) under the following assumptions: The debt issue raises the probability of bankruptcy. The firm has a 30 percent chance of going bankrupt after 3 years. If it does go bankrupt, it will incur bankruptcy costs of $200,000. The discount rate is 10 percent. Should the firm issue the debt?

Reference no: EM1347342

Questions Cloud

What was the velocity of the cart : Suppose one gallon of gasoline produces 1.1 x10^8 J of energy, and this energy is enough to operate a car for 18 miles. An aspirin tablet has a mass of 275 mg. If the aspirin could be converted completely into thermal energy, how many miles would ..

Strategies to enhance the public organization''s finances : State whether each activity should be under control of the federal, state, or local government, and describe why. a. Air pollution control regulations.

Elucidate and identify each error from given statements : The following sets of statements contain common errors. Elucidate and identify each error.

Determining most effective it projects : Not sure what will suit their requirements in achieving better organization between branches by updating their information systems. What will you suggest they do to find out most effective IT projects?

What is establishments wacc : What is Establishment's WACC and write out a market-value balance sheet assuming Establishment has no debt.

Find the stock new market value : Ezzell Company issued perpetual preferred stock with a 10 percent yearly dividend. The stock currently yields 8 percent, and its par value is $100.

Explain was demand for its hamburgers elastic or inelastic : Explain was the demand for its hamburgers elastic or inelastic. Evaluate the accuracy statement.

What is the expected return on the common stock : What is the expected return on the common stock after refinancing - Calculate it's after tax cash flow

What is the magnitude of the torque the bucket : Water is in the big beaker. Scale 1 reads 87 newtons, scale 2 reads 948 newtons, and scale 3 reads 0 newtons. The hanging block has a density of 10 × 10^3 kg/m3. To the nearest tenth of newton what does scale 1 read after the block is fully lowere..

User Account

All Pages