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FINC-3470-E1-Corporate Finance
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The Spartan Co. has an unlevered cost of capital of 11%, a cost of debt of 8%, and a tax rate of 35%. What should be the firm’s target debt-equity ratio, based on M&M II with taxes, if the targeted cost of equity is 12%?
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The IIT Training Company just paid its annual dividend of $0.50 a share. The stock has a beta of 0.88. The return on Treasury bills is 4.2% and the expected market risk premium is 11.8%. What is the cost of equity for this firm?
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Destiny Corporation has experienced returns of 9%, 18%, 27% and -15% returns over the past four years. Given this information, calculate the company's geometric average returns.
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The excess return required on a risky asset over that earned on a risk-free asset is called a:
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RDJ Corp. has expected earnings before interest and taxes (EBIT) of $5,000 (assumed to continue forever). Its unlevered cost of capital is 13.0% and its corporate tax rate is 35%. The company would like to borrow debt that amounts to $2,000 and use the proceeds to buy back shares. This debt has a 7.0% annual interest rate and pays interests annually. What is the firm’s cost of equity, after this capital conversion?
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The Sugar Cookie Company needs to raise $200 million for a project. If external financing is used, the firm faces flotation costs of 6% for equity and 3% for debt. If the project is financed 60% with equity and 40% with debt, how much cash must the firm raise in order to finance the project?
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Tina Black’s Fabrics is currently an all equity firm that has 15,000 shares of stock outstanding at a market price of $12.50 a share. Company management has decided to issue $60,000 worth of debt and use the funds to repurchase shares of the outstanding stock at the market price. The interest rate on the debt will be 7%. Ignoring taxes, what is the earnings per share (EPS) at the break-even level of earnings before interest and taxes (EBIT)?
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GT Industries has 6.5 million shares of common stock outstanding with a market price of $12 per share. The company has outstanding preferred stock with a market value of $10 million. The firm also has 25,000 corporate bonds outstanding each with a face value $1,000 and currently selling at 85% of face value on the bond market. The cost of equity is 10%, the cost of preferred stock is 7%, and the pre-tax cost of debt is 5%. What is the WACC for GT Industries, assuming the firm has a marginal corporate tax rate of 25%?
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According to the “Pecking Order Theory” of capital structure, what is the first preferred source of financing?
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Suppose a firm’s net income is $200 and its profit margin is 10%. If the firm is working at 2/3 capacity, then full capacity sales is:
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