Consider the following information for Abracadabra of America. Debt $84,000,000 book value outstanding The debt is trading at 86% of book value. The yield to maturity is 7%. Equity: 3.400,000 shares selling at $51 per share. Assume the expected rate of return on Abracadabra's stock is 16%. Taxes: Abracadabra's marginal tax rate is T0.21.You want to include financing in your valuation decision. Calculate the rate that you would use (Do not round intermediatecalculations. Enter your answer as a percent rounded to 2 decimal places.)answer

Cost of capital would be the weighted average cost of debt and also weighted cost of equity and that…

HOWing information for Abraccadabra of America Debt $84,000,000 book value outstanding. The debt is trading at 86% of book value. The yield to maturity is 7% Equity 3.400,000 shares selling at $51 per share. Assume the expected rate of return on Abracadabra's stock is 16% Faxes Abracadabra's marginal tax rate is r - 0.21. want to include financing in your valuation decision Calculate the rate that you would use (Do not round intermediate zulations. Enter your answer as a percent rounded to 2 decimal places.) wer

HOWing information for Abraccadabra of America Debt $84,000,000 book value outstanding. The debt is trading at 86% of book value. The yield to maturity is 7% Equity 3.400,000 shares selling at $51 per share. Assume the expected rate of return on Abracadabra's stock is 16% Faxes Abracadabra's marginal tax rate is r - 0.21. want to include financing in your valuation decision Calculate the rate that you would use (Do not round intermediate zulations. Enter your answer as a percent rounded to 2 decimal places.) wer

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter11: Determining The Cost Of Capital

Section: Chapter Questions

Problem 14P

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Suppose the Schoof Company has this book value balance sheet: The notes payable are to banks, and the interest rate on this debt is 10%, the same as the rate on new bank loans. These bank loans are not used for seasonal financing but instead are part of the companys permanent capital structure. The long-term debt consists of 30,000 bonds, each with a par value of 1,000, an annual coupon interest rate of 6%, and a 20-year maturity. The going rate of interest on new long-term debt, rd, is 10%, and this is the present yield to maturity on the bonds. The common stock sells at a price of 60 per share. Calculate the firms market value capital structure.
8. Use the following information:Debt: $79,000,000 book value outstanding. The debt is trading at 94% of book value. Theyield to maturity is 7%.Equity: 2,900,000 shares selling at $46 per share. Assume the expected rate of return onFederate d’s stock is 16%.Taxes: Federate d’s marginal tax rate is Tc = 0.21.Suppose Federated Junkyards decides to move to a more conservative debt policy. A yearlater, its debt ratio is down to 14.00% (D/V = 0.1400). The interest rate has dropped to6.6%. The company’s business risk, opportunity cost of capital, and tax rate have notchanged. Use the three-step procedure to calculate Federate d’s WACC under these newassumptions.
Use the following information: Debt: $79,000,000 book value outstanding. The debt is trading at 94% of book value. The yield to maturity is 7%. Equity: 2,900,000 shares selling at $46 per share. Assume the expected rate of return on Federated’s stock is 16%. Taxes: Federated’s marginal tax rate is Tc = 0.21. Suppose Federated Junkyards decides to move to a more conservative debt policy. A year later, its debt ratio is down to 14.00% (D/V = 0.1400). The interest rate has dropped to 6.6%. The company’s business risk, opportunity cost of capital, and tax rate have not changed.Use the three-step procedure to calculate Federated’s WACC under these new assumptions. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
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