Calculate the wacc for each firm assuming there are no taxes

Assignment Help Financial Management

Reference no: EM131328418

Firm A's capital structure contains 20 percent debt and 80 percent equity. Firm B's capital structure contains 50 percent debt and 50 percent equity.

Both firms pay 7 percent annual interest on their debt. The stock of Firm A has a beta of 1.0, and the stock of Firm B has a beta of 1.375. The risk-free rate of interest equals 4 percent, and the expected return on the market portfolio equals 12 percent.

a. Calculate the WACC for each firm, assuming there are no taxes.

b. Recalculate the WACC figures, assuming that the firms face a marginal tax rate of 34 percent.

c. Explain how taking taxes into account in part (b) changes your answer found in part (a).

Reference no: EM131328418

Questions Cloud

Calculate the return on equity for each firm : Calculate the return on equity (ROE) for each firm, assuming the return on assets is 3 percent.- The return on assets is 7 percent.- The return on assets is 11 percent. What general pattern do you observe?

Discuss the cultural differences in diet and heart health : Despite the increased public awareness about food choices, dietary practices, and physical activity, American continues to grow fatter. Obesity rates continue to increase being called an epidemic. More than 67% of Americans are either overweight..

Calculate the firms after tax wacc : What is the firm's cost of preferred stock?- What is the firm's cost of common stock?- Calculate the firm's after-tax WACC .

What is the firm weighted average cost of capital : The capital structure for the Carion Corporation is provided here: Bonds: $1,066,000 Preferred Stock: 263,000 Common Stock: 5,123,000 The company plans to maintain its debt structure in the future. If the firm has an after-tax cost of debt of 4.2%, a..

Calculate the wacc for each firm assuming there are no taxes : Calculate the WACC for each firm, assuming there are no taxes.- Recalculate the WACC figures, assuming that the firms face a marginal tax rate of 34 percent.

What is the firms required return on equity : What is the firm's required return on equity?- Ignoring taxes, use your finding in part (a) to calculate the firm's WACC.

What is balanced scorecard and how is relevant to qantas : Your friend Bob is studying architecture at another University and knows very little about accounting and annual reports. What is the Balanced Scorecard and how is this relevant to Qantas? In summary, how much were the Executives paid in 2015

Analyze the risk factors for breast cancer : Rachel comes from a family with a history of breast cancer on her mother's side. Rachel's mother died of breast cancer when she was very young. Rachel has two sisters, Lisa and Kristin. Rachel has remained close to Lisa, but she no longer has a re..

Calculate after tax cost of debt for each capital structure : Calculate the after-tax cost of debt for each capital structure.- Calculate the cost of preferred stock for each capital structure.

User Account

All Pages