User Account

All Pages

What is the new cost of equity capital

Assignment Help Financial Accounting
Reference no: EM132971032

Question - Tiger Corp. currently has a debt-to-value ratio (D/V) of 0.35. Their cost of debt (rD) is 8% and the company's equity beta is 1.5. The risk-free rate is 5%, and the expected market risk premium (rM - rf) is 10%. The current market value of the firm (i.e., debt plus equity) is $100 million, and there are 1 million shares outstanding. Assume all debt is perpetual. Ignore taxes and all other market frictions.

Required -

What is the weighted average cost of capital for Tiger Corp. The CEO suggests that the company needs to increase their debt-to-value ratio to 45% by issuing bonds and repurchasing shares. As a result of this restructuring, the cost of debt will rise to 10%.

How much additional debt does Tiger need to issue?

At what price will the shares be repurchased? How many shares will be repurchased?

What will the company's WACC be after the restructuring?

What is the new cost of equity capital?

Are equity holders better off after this financing transaction? Why or why not?

Reference no: EM132971032

Questions Cloud

Determine the dollar amount of dividends : During 2020, Alpha distributed $45,000 in dividends. Use this information to determine for 2020 the dollar amount of dividends
Determine the total materials variance : Determine the total materials variance and round to the nearest whole dollar. Enter a favorable variance as a positive number
What is the prepaid pension cost on december : The pension funding payment is made to the trustee on December 31 each year. What is the prepaid pension cost on December 31, 20x2
How much should be allocated abulencia : Abulencia and Daguiso have the following profit and loss agreement: salaries of P30,000. How much should be allocated Abulencia
What is the new cost of equity capital : The risk-free rate is 5%, and the expected market risk premium (rM - rf) is 10%. What is the new cost of equity capital
Discuss the project risk : Select past 5 year past revenue data of a firm. Assume 0.5% of yearly income is from a project. Discuss the project risk
What is the forward rate for the two year period : The 1-year, 2-year, 3-year, and 4-year risk-free zero rates are 4%, 4.5%, 4.75%, and 5% with annual compounding. What is the forward rate
Calculate the profits of the group and imperial : Calculate the profits of the group and Imperial if Maven division decided to take the Imperial offer and at the same time Imperial sold to the external
Give an advice to lusty lite : Six month call and put options are quoted at a strike price of €0.9550/US$. Give an advice to Lusty Lite in terms of her best hedging alternative

Reviews

Write a Review

Financial Accounting Questions & Answers

  Financial statement analysis and preparation

Financial Statement Analysis and Preparation

  Shareholder of a company

Describe the ways that a person can become a shareholder of a company. Why Wal-Mart would split its stock?

  Financial and accounting principles

An understanding of financial and accounting principles can be a valuable tool for managers. While not all managers will find themselves calculating financial ratios or preparing annual financial data.

  Prepare a statement of cash flow using the direct method

Prepare a Statement of Cash Flow using the Direct Method and Prepare the Operations section of the Statement of Cash Flow using the Indirect Method.

  Financial accounting assignment

This assignment has one case study and two question apart from case study. Questions related to document Liquidation question and Company financial statements question - Torquay Limited

  Prepare general journal entries for goela

Prepare general journal entries for Goela Ltd

  Principles of financial accounting

Prepare the journal entry to record the acquisition of the assets.

  Prepare general journal entries to record the transactions

Prepare general journal entries to record the transactions, assuming use of the periodic inventory system

  Global reporting initiative

Compare the view espoused by the economist Milton Friedman about the social responsibilities of business with the views express by Stigler.

  Explain the iasb conceptual frameworks

Explain the IASB Conceptual Framework's perspective of users and their decisions.

  Determine the company''s financial statements

T he focus of the report is to determine the extent to which you are comfortable relying on the financial statements as presented by management .

  Computation of free cash flow

Computation of Free Cash Flow

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