User Account

All Pages

What is the market interest rate onxyzs debt

Assignment Help Financial Accounting
Reference no: EM131323190

Module Cost of Capital Worksheet

Prompt

Review the questions below and use the data provided in the question to solve the calculation. As you work through each equation, think about where the data for your company maybe found to make the same calculations and how the information from these calculations can inform your recommendations for your final project. Use the non-graded discussion board in this module to ask questions of your peers to inform your responses to the questions below.This assignment must be submitted as an Excel file.

1. What is the market interest rate onXYZ's debt and its component cost of debt?

Coupon rate

12%

Coupons per year

2

Years to maturity

15

Price

$1,153.72

Face value

$1,000

Tax rate

40%

Market Interest Rate =
Cost of Debt =

2. What is the firm's cost of preferred stock?

Nominal dividend rate

10%

Dividends per year

4

Par value

$100

Price

$111.10

Cost of Preferred Stock =

3. What isXYZ's estimated cost of common equity using the CAPM approach?

β

1.2

rRF

7%

RPM

6%

Estimated Cost of Common Equity =

4. What is the estimated cost of common equity using the DCF approach?

Price

$50

Current dividend

$4.19

Constant growth rate

5%

Estimated Cost of Common Equity =

5. What is the bond-yield-plus-risk-premium estimate for XYZ's cost of common equity?

"Bond yield + RP" premium

4%

market interest rate onXYZ's debt

10%

Bond-yield-plus-risk-premium estimate =

6. What is your final estimate for rs?

METHOD

ESTIMATE

CAPM

14.20%

DCF

13.80%

rd + RP

14.00%

Estimate =

7. XYZ estimates that if it issues new common stock, the flotation cost will be 15%. XYZ incorporates the flotation costs into the DCF approach. What is the estimated cost of newly issued common stock, considering the flotation cost?

% Flotation cost

15%

Net proceeds after flotation

$42.50

Cost of Newly Issued Common Stock

8. What isXYZ's overall, or weighted average, cost of capital (WACC)? Ignore flotation costs.

wd

30%

rd (1 - T)

6.00%

wp

10%

rp

9.00%

wc

60%

rs

14.00%

Reference no: EM131323190

Questions Cloud

Distinguish between a paper session and a poster session : When an author submits a manuscript to a journal, what is the general process by which the decision whether or not to publish the paper is made?
Property rights-corruption and economic progress : What is the relationship between property rights, corruption, and economic progress? How important are anti corruption efforts in the effort to improve a country's level of economic development?
What is the yield on three-year corporate bond : The 60-day T-bills are currently yielding 7%. A broker has given you the following estimates of current interest rate premiums: Financial analyst has gathered market information, and suggests that the real rate of interest is 3 % and is expected to r..
What are the three central characteristics of good writing : Why should we be cautious about reports of research that are published in the popular media and posted on the world wide web?
What is the market interest rate onxyzs debt : MBA 520- What is the market interest rate onXYZ's debt and its component cost of debt? What isXYZ's estimated cost of common equity using the CAPM approach?
Organization influence the quality of estimates : How does the culture of a organization influence the quality of estimates?
Draft a legal memorandum discussing whether paralegal fees : Paralegals may attest to the fact that their work can be demanding and thus requires proper time management to meet multiple deadlines. Imagine that a senior partner has assigned your supervising attorney to litigate a breach of contract case, and..
Ethics and sustainable positive social change : How do finance and accounting play a role in ethics and sustainable positive social change?
Effective project management : Why are accurate estimates critical to effective project management?

Reviews

Write a Review

Financial Accounting Questions & Answers

  Proportionate growth rate-equilibrium size

A population of beavers was introduced into a reserve on 1 January in a particular year, and the size of the population was estimated on the same date in each subsequent year.

  Calculate amount of under-over-absorbed overhead for year

Carmen has a bakery that specializes in dog foos in a variety of sizes and flavors. Carmen uses a flexible budget to forecast manufacturing overhead, which is then allocated to products based on over hours. Calculate the overhead application rate at ..

  Cash flow from operating activities

A company has Net Income of $20, which included $4 of depreciation expense. There were no other noncash expenses in Net Income and there were no gains or losses. Accounts receivable was $40 at the beginning of the year and $25 at the end of the year.

  The most serious slave rebellion in the the colonial period

The most serious slave rebellion in the the colonial period; inspired in part by Spanish officials' promise of freedom for American slaves who escaped to Florida.Historical Significance:Led to the Negro Act of 1740 prohibiting slaves from growing the..

  Expenditure and human resources and payroll cycles

For the Revenue, Expenditure, and Human Resources / Payroll cycles, identify at least three specific ways (tools) that information technology can be used to improve each of these processes, and identify & describe an internal control method that is n..

  Create a partial balance sheet of spain company

Information related to plant assets, natural resources, and intangibles at the end of 2010 for Spain Company is as follows: buildings $1,100,00; accumulated depreciation--buildings $650,000; goodwill $410,000; coal mine $500,000; accumulated depl..

  Determine the maximum income from operations possible

Break-Even Sales Under Present and Proposed Conditions Howard Industries Inc., operating at full capacity, sold 64,000 units at a price of $45 per unit during the current year. Determine the maximum income from operations possible with the expanded p..

  Companys overall net operating income

Lusk Company produces and sells 16,100 units of Product X each month. The selling price of Product X is $31 per unit, and variable expenses are $25 per unit. A study has been made concerning whether Product X should be discontinued.

  Compute grant accounts receivable turnover ratio

Compute Grant's accounts receivable turnover ratio for the year. The company does not believe it will have any bad debts.

  Creates a proposal for international expansion

Creates a Proposal for International Expansion That Includes a Discussion of Constraint Theory Importance in the Decision Process. Incorporates CVP Analysis, Balanced Scorecard, and Complete Budgeted Financial Statements.

  Log transformation when points do not seem to follow a

log transformation when points do not seem to follow a straight line.speculate what you think we might have to do for

  Capitalize and depreciate them over the estimated life

The proper accounting for these restoration costs is: Expense them as incurred. Capitalize and depreciate them over the estimated life of the mine. Add them into the depletion base of the mine.

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