Silver Inc. will be registering with SEC. Its incorporators was able to gather the following cost of long-term financing sources depending on forecasted debt ratios. Under the optimal decision, what would be the minimum return (in pesos) for the coming year if an incorporator invests P50,000 at the start of the year? Cost of Debt Cost of Equity Debt Ratio 0.00% 0.00% 10.00% 20.00% 4.90% 11.75% 40.00% 5.50% 13.25% 60.00% 5.40% 17.50% 80.00% 5.80% 29.75%

Silver Inc. will be registering with SEC. Its incorporators was able to gather the following cost of long-term financing sources depending on forecasted debt ratios. Under the optimal decision, what would be the minimum return (in pesos) for the coming year if an incorporator invests P50,000 at the start of the year? Cost of Debt Cost of Equity Debt Ratio 0.00% 0.00% 10.00% 20.00% 4.90% 11.75% 40.00% 5.50% 13.25% 60.00% 5.40% 17.50% 80.00% 5.80% 29.75%

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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You have the following initial information on Financeur Co. on which to base your calculations and discussion for question 2): • Current long-term and target debt-equity ratio (D:E) = 1:3 • Corporate tax rate (TC) = 30% • Expected Inflation = 1.55% • Equity beta (E) = 1.6325 • Debt beta (D) = 0.203 • Expected market premium (rM – rF) = 6.00% • Risk-free rate (rF) =2.05% 2) Assume now a firm that is an existing customer of Financeur Co. is considering a buyout of Financeur Co. to allow them to integrate production activities. The potential acquiring firm’s management has approached an investment bank for advice. The bank believes that the firm can gear Financeur Co. to a higher level, given that its existing management has been highly conservative in its use of debt. It also notes that the customer’s firm has the same cost of debt as that of Financeur Co. Thus, it has suggested use of a target debtequity ratio of 2:3 when undertaking valuation calculations. a) What would the required…
You have the following initial information on Financeur Co. on which to base your calculationsand discussion for questions 1) and 2):• Current long-term and target debt-equity ratio (D:E) = 1:3• Corporate tax rate (TC) = 30%• Expected Inflation = 1.55%• Equity beta (E) = 1.6325• Debt beta (D) = 0.203• Expected market premium (rM – rF) = 6.00%• Risk-free rate (rF) =2.05%1) The CEO of Financeur Co., for which you are CFO, has requested that you evaluate apotential investment in a new project. The proposed project requires an initial outlay of$7.25 billion. Once completed (1 year from initial outlay) it will provide a real net cashflow of $556 million in perpetuity following its completion. It has the same business riskas Financeur Co.’s existing activities and will be funded using the firm’s current target D:Eratio.a) What is the nominal weighted-average cost of capital (WACC) for this project?b) As CFO, do you recommend investment in this project? Justify your answer(numerically).
You have the following initial information on CMR Co. on which to base your calculations and discussion for questions 1) • Current long-term and target debt-equity ratio (D:E) = 1:4• Corporate tax rate (TC) = 30%• Expected Inflation = 1.75%• Equity beta (E) = 1.6385• Debt beta (D) = 0.2055• Expected market premium (rM – rF) = 6.00%• Risk-free rate (rF) = 2.15% 1) The CEO of CMR Co., for which you are CFO, has requested that you evaluate a potential investment in a new project. The proposed project requires an initial outlay of $7.15 billion. Once completed (1 year from initial outlay) it will provide a real net cash flow of $575 million in perpetuity following its completion. It has the same business risk as CMR Co.’s existing activities and will be funded using the firm’s current target D:E ratio. a) What is the nominal weighted-average cost of capital (WACC) for this project?b) As CFO, do you recommend investment in this project? Justify your answer (numerically).
You have the following initial information on CMR Co. on which to base your calculationsand discussion for questions 1) and 2):• Current long-term and target debt-equity ratio (D:E) = 1:4• Corporate tax rate (TC) = 30%• Expected Inflation = 1.75%• Equity beta (E) = 1.6385• Debt beta (D) = 0.2055• Expected market premium (rM – rF) = 6.00%• Risk-free rate (rF) = 2.15%1) The CEO of CMR Co., for which you are CFO, has requested that you evaluate apotential investment in a new project. The proposed project requires an initial outlay of$7.15 billion. Once completed (1 year from initial outlay) it will provide a real net cashflow of $575 million in perpetuity following its completion. It has the same business riskas CMR Co.’s existing activities and will be funded using the firm’s current target D:Eratio.a) What is the nominal weighted-average cost of capital (WACC) for this project?
You have the following initial information on Financeur Co. on which to base your calculationsand discussion for questions 1) and 2): (Answers in Excel if possible) • Current long-term and target debt-equity ratio (D:E) = 1:3• Corporate tax rate (TC) = 30%• Expected Inflation = 1.55%• Equity beta (E) = 1.6345• Debt beta (D) = 0.15• Expected market premium (rM – rF) = 6.00%• Risk-free rate (rF) =2%1) The CEO of Financeur Co., for which you are CFO, has requested that you evaluate apotential investment in a new project. The proposed project requires an initial outlay of$7.26 billion. Once completed (1 year from initial outlay) it will provide a real net cashflow of $555 million in perpetuity following its completion. It has the same business riskas Financeur Co.’s existing activities and will be funded using the firm’s current target D:Eratio.a) What is the nominal weighted-average cost of capital (WACC) for this project?b) As CFO, do you recommend investment in this project? Justify…
You have the following initial information on CMR Co. on which to base your calculations and discussion for questions 1) and 2):• Current long-term and target debt-equity ratio (D:E) = 1:4• Corporate tax rate (TC) = 30%• Expected Inflation = 1.75%• Equity beta (E) = 1.6385• Debt beta (D) = 0.2055• Expected market premium (rM – rF) = 6.00%• Risk-free rate (rF) = 2.15% 1) The CEO of CMR Co., for which you are CFO, has requested that you evaluate a potential investment in a new project. The proposed project requires an initial outlay of $7.15 billion. Once completed (1 year from initial outlay) it will provide a real net cash flow of $575 million in perpetuity following its completion. It has the same business risk as CMR Co.’s existing activities and will be funded using the firm’s current target D:E ratio. a) What is the nominal weighted-average cost of capital (WACC) for this project?b) As CFO, do you recommend investment in this project? Justify your answer (numerically). Assume now…
Financial statements Net operating revenues Operating expenses Operating income Non-operating items: Interest expense Other Net income Total assets Total shareholders' equity S 2020 33.8 28.9 4.9 (1.2) (0.6) 3.1 $ $ 200.0 78.0 - X
Borrower Inc. is currently estimating the value of its bonded indebtedness with the following information: Real risk-free rate is currently estimated at 4.25% • The expected inflation premium is at 1.75% Considering the current creditworthiness of Borrower Inc., it's credit spread is estimated at: o 2.0% for 3-year maturity instruments o 3.0% for 4-year maturity instruments o 4.0% for 5-year maturity instruments Borrower Inc. have the following issued bonded indebtedness: Bond A carries a 5-year tenor with a face value of Php500,000 issued 2 years ago carrying a coupon of 8.0% per annum. Bond B carries a 5-year tenor with a face value of Php600,000 issued a year ago carrying a coupon of 10.0% per annum. Bond C carries a 8-year tenor with a face value of Php400,000 issued 3 years ago carrying a coupon of 11.5% per annum. What is the value of Bond A? Clue - correct answer should have a string of number "00" appearing in sequence in any unit until two decimal points.
You have the following initial information on which to base your calculations and discussion: Debt yield = 2.5% Required Rate of Return on Equity = 13% Expected return on S&P500 = 8% Risk-free rate (rF) = 1.5% Inflation = 2.5% Corporate tax rate (TC) = 30% Current long-term and target debt-equity ratio (D:E) = 1:3 a. What is the unlevered cost of equity (rE*) for this firm? Assume that the management of the firm is considering a leveraged buyout of the above company. They believe that they can gear the company to a higher level due to their ability to extract efficiencies from the firm’s operations. Thus, they wish to use a target debt-equity ratio of 3:1 in their valuation calculations. b. What would the levered cost of equity equal for this firm at a debt-equity ratio (D:E) of 3:1? c. What would the required rate of return for the company equal if it were to be acquired under the leveraged buyout structure (i.e., what would the estimated firm WACC equal to under a…
You have the following initial information on which to base your calculations and discussion: Debt yield = 2.5% Required Rate of Return on Equity = 13% Expected return on S&P500 = 8% Risk-free rate (rF) = 1.5% Inflation = 2.5% Corporate tax rate (TC) = 30% Current long-term and target debt-equity ratio (D:E) = 1:3 a. What is the unlevered cost of equity (rE*) for this firm? Assume that the management of the firm is considering a leveraged buyout of the above company. They believe that they can gear the company to a higher level due to their ability to extract efficiencies from the firm’s operations. Thus, they wish to use a target debt-equity ratio of 3:1 in their valuation calculations.
based on the financial ratio anaylsis of the company below, will the comapny be successful after taking a 500.0 mil dollar loan? or should they sought other forms of financing? Analysis of Financial Data (Table with ratios) Ratio Analysis 2021 Est. 2020 2019 Industry Average Liquidity Ratios Current Ratio (times) 2.34 3.22 3.68 4.2 Quick Ratio (times) 0.91 1.24 1.79 2.1 Asset Management Ratios Average sales/day 10.96 8.22 7.81 9 Inventory Turnover Ratio (times) 4.43 3.74 5.06 9 Days Sales Outstanding (days) 38.32 45.62 40.34 36 Fixed Assets Turnover Ratio (times) 2.12 2.52 3.27 3 Total Asset Turnover Ratio 1.32 1.37 1.69 1.8 Debt Management Ratios Total Debt to Total Assets (%) 59.09 48.58 47.6 40 Times Interest Earned (times) 7.9 6.81 11 6…
1. Calculate WACC of the company at current debt level. 2. Calculate expected price of BCL`s share in year 2020. 3. Find out the optimal level of debt for the company, using minimum WACC analysis. 4. Calculate Degree of operating leverage of BCL for year 2020.

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