F2 Badger Corp. has an issue of 6% bonds outstanding with 6 months left tomaturity. The bonds are currently priced at $985.34, and pay interestsemiannually. The firm's marginal tax rate is 40%. The estimated risk premiumbetween the company's stock and bond returns is 5%. The firm's expects tomaintain a capital structure with 40% debt and 60% equity going forward. Thecompany's W.A.C.C. is ____%.Margin of error for correct responses: +/- .10(%)Rounding and Formatting instructions:Do not enter dollar signs, percent signs, commas, X, or any words in yourresponse. Do not round any intermediate work, but round your *final* responseto 2 decimal places (example: if your answer is 12.3456, 12.3456%, or$12.3456, you should enter 12.35).

To calculate the company's weighted average cost of capital (WACC), we need to calculate the…

Answered: Badger Corp. has an issue of 6% bonds…

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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Badger Corp. has an issue of 6% bonds outstanding with 6 months left to maturity. The bonds are currently priced at $1,008.97, and pay interest semiannually. The firm's marginal tax rate is 40%. The estimated risk premium between the company's stock and bond returns is 3%. The firm's expects to maintain a capital structure with 40% debt and 60% equity going forward. The company's W.A.C.C. is ____%. Round your final answer to 2 decimal places (example: enter 12.34 for 12.34%), but do not round any intermediate work in the process.
Badger Corp. has an issue of 6% bonds outstanding with 6 months left to maturity. The bonds are currently priced at $997.57, and pay interest semiannually. The firm's marginal tax rate is 40%. The estimated risk premium between the company's stock and bond returns is 4%. The firm's expects to maintain a capital structure with 40% debt and 60% equity going forward. The company's W.A.C.C. is %.
Ahmad are just appointed as a financial analyst in Catalyst Berhad. Currently, the 3-month treasury bill is at 3.00% and the company's credit risk premium is 6.00%, the domestic beta is estimated at 1.25, the international beta at .95, and the company's capital structure is now 60% debt. Other financial details are as following. Domestic International Assumptions CAPM ICAPM Cost of debt, before tax, kd 7.00% 5.00% Corporate income tax rate, t 28% 28% General return on market portfolio, km 9.00% 8.00% For both the domestic CAPM and ICAPM, calculate cost of equity weighted Average Cost of Capital
Doha plc has some surplus funds that it wishes to invest in bonds. The company requires a return of 15% on bonds, and the finance director has asked you to analyse whether it should invest in either of the following bonds that are available:Company A: Expected profit 12% bonds, redeemable at par at the end of two more years, with a current market value of QAR 95 per QAR 100 bondCompany B: Expected profit 8% bonds, redeemable at QAR110 at the end of two more years, with a current market value of QAR 95 per QAR 100 bonda. Calculate the expected value (price) of the two bonds and evaluate if either offer an appropriate return for Doha Plc.b. Critically evaluate what would be the impact on the price of bonds if Doha Plc reduces their required return.c. Critically evaluate and discuss the factors that should be considered by the directors of a company when choosing whether to use debt or equity finance for a new projectd. Recently one director has attended a finance conference, on their…
ZZZ company has $27 million of current assets and $29 million of noncurrent assets. It forecasts an EBIT of $5.2 million and pays income taxes at a 21% rate. Short-term bank notes carry a 4% interest rate, and the company can issue long-term bonds at 7%. The company has set a target debt ratio of 45%. Required: A. For a maturity mix of 60% current and 40% long-term debt, prepare the company's abbreviated balance sheet. B. For a maturity mix of 60% current and 40% long-term debt, prepare the company's financial half of its income statement. C. Based on the financial statements above, calculate the (1) return on equity ratio and the (2) current ratio in order to evaluate the company's risk and return. I also would love to see the excel formulas please
Acorp's outstanding bonds have a 4.7% coupon bond with 6 months remaining until maturity is currently trading at $994.1. The firm's marginal tax rate is 30%. Assume semi-annual coupon payments. The company's after-tax cost of debt is__________%. Do not round any intermediate work, but round your final answer to 2 decimal places (example: enter 12.34 for 12.34%). Do not enter the % sign.
Acetate, Inc. has equity with a market value of $20 million and debt with a market value of $10 million. Treasury bills that mature in one year yield 8% per year, and the expected return on the market portfolio over the next year is 18%. The beta of Acetate’s equity is .90. The firm pays no taxes. Required: (a) Calculate Acetate’s debt to equity ratio. (b) Calculate Acetate’s weighted average cost of capital. (c) Calculate the cost of capital for an otherwise identical all-equity firm.
Twill Consulting has total assets of $1,810. These assets are expected to increase in value to either $1,900 or $2,400 by next year. The company has a pure discount bond outstanding with a face value of $2,000. This bond matures in one year. Currently, U.S. Treasury bills are yielding 5.5 percent. What is the value of the equity in this firm? Multiple Choice $7.24 $6.98 $7.89 $6.67 $7.08
Currently, Forever Flowers Inc. has a capital structure consisting of 25% debt and 75% equity. Forever's debt currently has an 7% yield to maturity. The risk-free rate (rr) is 5%, and the market risk premium (rm- TRF) is 8%. Using the CAPM, Forever estimates that its cost of equity is currently 12.5%. The company has a 40% tax rate. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. Do not round intermediate calculations. Open spreadsheet a. What is Forever's current WACC? Round your answer to two decimal places. 11.925 % b. What is the current beta on Forever's common stock? Round your answer to two decimal places. 1.21 c. What would Forever's beta be if the company had no debt in its capital structure? (That is, what is Forever's unlevered beta, bu?) Round your answer to two decimal places. 1.00 X Forever's financial staff is considering changing its capital structure to 40% debt…
Hexaware Systems Limited uses the market value weights of Debt and Equity for its WACC computation. The firm has issued 1 million bonds and the bonds are currently trading at $255 each. The debt issued by the firm carries AAA rating. The credit spread is 150 basis points of 10-year treasury yield. The 10-year treasury is currently yielding 5.2%. Th firm has 20 million shares outstanding with a current market price of $410 each. The return from DJIA for the period is 12% and the beta of Hexaware is 1.3.
Currently, Bloom Flowers Inc. has a capital structure consisting of20% debt and 80% equity. Bloom's debt currently has an 8% yield to maturity. The risk-free rate (rgr) is 5%, and the market risk premium (ry ~ rer) is 6%. Using the CAPM, Bloom estimates that its cost of equity is currently 12.5%. The company has a 40% tax rate.a. Whatis Bloom's current WACC?b. What is the current beta on Bloom's common stock?c. What would Bloom’s beta be if the company had no debt in its capital structure? (That is, what is Bloom’s unlevered beta, by?)Bloom’s financial staff is considering changing its capital structure to 40% debt and 60% equity. If the company went ahead with the proposed change, the yield to maturity on the company’s bonds would rise to 9.5%. The proposed change will have no effect on the company’s tax rate.d. What would be the company’s new cost of equily if it adopted the proposed change in capital structure?e. What would be the company’s new WACC if it adopted the proposed change…
BBB company has $54 million of current assets and $58 million of noncurrent assets. It forecastsan EBIT of $10.4 million and pays income taxes at a 35% rate. Short-term bank notes carry a 5%interest rate, and the company can issue long-term bonds at 7%. The company has set a targetdebt ratio of 45%. Required: A. For a maturity mix of 60% current and 40% long-term debt, prepare the company'sabbreviated balance sheet. B. For a maturity mix of 60% current and 40% long-term debt, prepare the company'sfinancial half of its income statement. C. Based on the financial statements above, calculate the return on equity ratio in order toevaluate the company's risk and return. D. Based on the financial statements above, calculate the current ratio in order to evaluatethe company's risk and return.

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