Market Debt-to- Value Ratio (wd) Market Equity-to- Value Ratio (ws) 1.0 6.0% 0.0 0.10 0.90 6.4 0.20 0.80 7.0 0.30 8.2 0.70 0.60 0.40 10.0 F. Pierce uses the CAPM to estimate its cost of common equity, rs, and at the time of the analaysis the risk-free rate is 6%, the market risk premium is 8%, and the company's tax rate is 25%. F. Pierce estimates that its beta now (which is "unlevered" because it currently has no debt) is 0.7. Based on this information, Market Debt-to Equity Ratio (D/S) 0.00 0.1111 0.2500 0.4286 0.6667 Before-Tax Cost of Debt (rd)
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- WACC and Optimal Capital Structure F. Pierce Products Inc. is considering changing its capital structure. F. Pierce currently has no debt and no preferred stock, but it would like to add some debt to take advantage of low interest rates and the tax shield. Its investment banker has indicated that the pre-tax cost of debt under various possible capital structures would be as follows: F. Pierce uses the CAPM to estimate its cost of common equity, rs and at the time of the analysis the risk-free rate is 5%, the market risk premium is 6%, and the companys tax rate is 40%. F. Pierce estimates that its beta now (which is unlevered because it currently has no debt) is 0.8. Based on this information, what is the firms optimal capital structure, and what would be the weighted average cost of capital at the optimal capital structure?Patented Products is considering changing its capital structure. Patented currently has no debt and no preferred stock, but it would like to add some debt to take advantage of the tax shield. Its investment banker has indicated that the pre-tax cost of debt under various possible capital structures would be as follows: Debt ratio (wd) Equity ratio (we) Debt/Equity ratio B-T cost of debt 0.0 1.0 0.0 6.0% 0.10 0.90 0.1111 6.4 0.20 0.80 0.2500 7.0 0.30 0.70 0.4286 8.2 0.40 0.60 0.6667 10.0 Patented uses the CAPM to estimate its cost of common equity, rs, and at the…F. Pierce Products Inc. is considering changing its capital structure. F. Pierce currentlyhas no debt and no preferred stock, but it would like to add some debt to takeadvantage of low interest rates and the tax shield. Its investment banker has indicatedthat the pre-tax cost of debt under various possible capital structures would be asfollows:Market Debt-to-Value Ratio (wd) 0.0 0.2 0.4 0.6 0.8 Market Equity-to-Value Ratio (ws) 1.0 0.8 0.6 0.4 0.2 Market Debt-to-Equity Ratio (D/S) 0.00 0.25 0.67 1.50 4.00 Before-Tax Costof Debt (rd) 6.0% 7.0 8.0 9.0 10.0 F. Pierce uses the CAPM to estimate its cost of common equity, rs and at the time of theanalysis the risk-free rate is 5%, the market risk premium is 6%, and the company’s taxrate is 40%. F. Pierce estimates that its beta now (which is “unlevered” because itcurrently has no debt) is 0.8. Based on this information, what is the firm’s optimalcapital structure, and what would be the weighted average cost of capital at the optimalcapital…
- B.F. Pierce & Company is considering changing its capital structure. The company currently has no debt and no preferred stock, but it would like to add some debt to take advantage of low interest rates and the tax shield. Its investment banker has indicated that the pre-tax cost of debt under various possible capital structures would be as follows: 8.66% 9.21% 8.83% Market Debt-to- Value Ratio 9.07% (WD) 0.00 0.20 0.40 0.60 0.80 Market Equity-to- Value Ratio (WE) 1.00 0.80 0.60 0.40 0.20 Market Debt-to- Equity Ratio (D/E) 0.00 0.25 0.67 1.50 4.00 Before-Tax Cost of Debt (rD) 5.00% The company uses the CAPM to estimate its cost of common equity. Currently the risk-free rate is 4%, the market risk premium is 6%, and the company's tax rate is 25%. The company estimates that its beta now (which is unlevered because it currently has no debt) is 0.8. Based on this information, what is the firm's weighted average cost of capital at its optimal capital structure? 6.00% 7.00% 8.00% 9.00%Pierce Products Inc. is considering changing its capital structure. F. Pierce currently has no debt and no preferred stock, but it would like to add some debt to take advantage of low interest rates and the tax shield. Its investment banker has indicated that the pre-tax cost of debt under various possible capital structures would be as follows: Market Debt-to-ValueRatio(wd) Market Equity-to-ValueRatio(ws) Market Debt-to-EquityRatio(D/S) Before-Tax Cost of Debt (rd) 0.0 1.0 0.00 6.0% 0.2 0.8 0.25 7.0 0.4 0.6 0.67* 8.0 0.6 0.4 1.50 9.0 0.8 0.2 4.00 10.0 * Use the exact value of 2/3 in your calculations. F. Pierce uses the CAPM to estimate its cost of common equity, rs and at the time of the analaysis the risk-free rate is 6%, the market risk premium is 5%, and the company's tax rate is 40%. F. Pierce estimates that its beta now (which is "unlevered" because it currently has no debt) is 1.25. Based on this information, what is the firm's optimal capital…B.F. Pierce & Company is considering changing its capital structure. The company currently has no debt and no preferred stock, but it would like to add some debt to take advantage of low interest rates and the tax shield. Its investment banker has indicated that the pre-tax cost of debt under various possible capital structures would be as follows: 9.21% 9.07% 8.83% Market Debt-to- Value Ratio 8.66% (WD) 0.00 0.20 0.40 0.60 0.80 Market Equity-to- Value Ratio (WE) 1.00 0.80 0.60 0.40 0.20 Market Debt-to- Equity Ratio (D/E) 0.00 0.25 0.67 1.50 4.00 The company uses the CAPM to estimate its cost of common equity. Currently the risk-free rate is 5%, the market risk premium is 6%, and the company's tax rate is 35%. The company estimates that its beta now (which is unlevered because it currently has no debt) is 0.8. Based on this information, what is the firm's weighted average cost of capital at its optimal capital structure? Before-Tax Cost of Debt (rD) 4.00% 6.00% 8.00% 10.00% 12.00%
- WACC and Optimal Capital Structure F. Pierce Products Inc. is considering changing its capital structure. F. Pierce currently has no debt and no preferred stock, but it would like to add some debt to take advantage of the tax shield. Its investment banker has indicated that the pre-tax cost of debt under various possible capital structures would be as follows: Equity: Market Debt-to- Value Ratio (wa) 0.0 0.10 0.20 0.30 0.40 F. Pierce uses the CAPM to estimate its cost of common equity, rs, and at the time of the analaysis the risk-free rate is 5%, the market risk premium is 7%, and the company's tax rate is 25%. F. Pierce estimates that its beta now (which is "unlevered" because it currently has no debt) is 0.7. Based on this information, what is the firm's optimal capital structure, and what would be the weighted average cost of capital at the optimal capital structure? Do not round intermediate calculations. Round your answers to two decimal places. Debt: WACC: Market Equity-to-…Ilumina Corp is trying to determine its optimal capital structure. The company’s capital structure consists of debt and common stock. In order to estimate the cost of debt, the company has produced the following table: Percent financed with debt (wd) Percent financed with equity (wc) Debt-to-equity ratio (D/S) After-tax cost of debt (%) 0.25 0.75 0.25/0.75 = 0.33 6.9% 0.35 0.65 0.35/0.65 = 0.5385 7.1% 0.50 0.50 0.50/0.50 = 1.00 8.0% The company uses the CAPM to estimate its cost of common equity, rs. The risk-free rate is 5% and the market risk premium is 6%. Ilumina estimates that its beta with 10% debt is 1. The company’s tax rate, T, is 40%. On the basis of this information, what is the company’s optimal capital structure, and what is the firm’s cost of capital at this optimal capital structure? (Please show work)WACC and Optimal Capital Structure F. Pierce Products Inc. is considering changing its capital structure. F. Pierce currently has no debt and no preferred stock, but it would like to add some debt to take advantage of the tax shield. Its investment banker has indicated that the pre-tax cost of debt under various possible capital structures would be as follows: Market Debt-to-Value Ratio (wd) Market Equity-to-Value Ratio (ws) Market Debt-toEquity Ratio (D/S) Before-Tax Cost ofDebt (rd) 0.0 1.0 0.00 6.0 % 0.10 0.90 0.1111 6.4 0.20 0.80 0.2500 7.0 0.30 0.70 0.4286 8.2 0.40 0.60 0.6667 10.0 F. Pierce uses the CAPM to estimate its cost of common equity, rs, and at the time of the analaysis the risk-free rate is 5%, the market risk premium is 7%, and the company's tax rate is 25%. F. Pierce estimates that its beta now (which is "unlevered" because it currently has no debt) is 0.9. Based on this information, what is the firm's optimal…
- (15-11) WACC and Optimal Capital Structure F. Pierce Products Inc. is considering changing its capital structure. F. Pierce currently has no debt and no preferred stock, but it would like to add some debt to take advantage of low interest rates and the tax shield. Its investment banker has indicated that the pre-tax cost of debt under various possible capital structures would be as follows: Before-Tax Cost Market Equity-to- Value Ratio (w,) Market Debt-to- Market Debt-to- Value Ratio (wa) Equity Ratio (D/S) of Debt (ra) 0.0 1.0 0.00 6.0% 0.2 0.8 0.25 7.0 0.4 0.6 0.67 8.0 0.6 0.4 1.50 9.0 0.8 0.2 4.00 10.0 F. Pierce uses the CAPM to estimate its cost of common equity, r, and at the time of the analysis the risk-free rate is 5%, the market risk premium is 6%, and the company's tax rate is 40%. F. Pierce estimates that its beta now (which is "unlevered" because it currently has no debt) is 0.8. Based on this information, what is the firm's optimal capital structure, and what would be the…An all equity firm announces that it is going to borrow $11 million in debt and then keep that debt at a constant value relative to the overall value of the company. What would be the appropriate discount rate for the expected interest tax shields generated by this additional debt? A. Required return on debt B. Required return on equity C. Required return on Assets D. WACCDiol Athletics is trying to determine its optimal capital structure, which now consists of only debt and common equity. The firm does not currently use preferred stock in its capital structure, and it does not plan to do so in the future. To estimate how much its debt would cost at different debt levels, the company’s treasury staff has consulted with investment bankers and, on the basis of those discussions, has created the following table: Structure Market Debt-to-Value Ratio (Wd) Market Equity-to-Value Ratio (Ws) Bond Rating Pre-tax Cost of Debt (rd) A 0.0 1.0 AA 9.0% B 0.2 0.8 BBB 10.5% C 0.5 0.5 BB 11.6% D 0.6 0.4 C 12.7% E 0.75 0.25 D 14.0% Diol uses the CAPM to estimate its cost of common equity, rs. The company estimates that the risk-free rate is 7%; the market risk is 13%, and the company’s tax rate is 20%. Diol estimates that if it had no debt, its “unlevered” beta, bU, would be 1.3. What is the…