Problem-taxes and the cost of capital

Assignment Help Finance Basics
Reference no: EM131721467

Problem: Taxes and the Cost of Capital (LO2)

Here is Icknield's market-value balance sheet (figures in $ millions):

Net working capital $ 550 Debt $ 800 Long-term assets   2,150 Equity   1,900 Value of firm $ 2,700   $ 2,700  

The debt is yielding 7%, and the cost of equity is 14%. The tax rate is 35%. Investors expect this level of debt to be permanent.

a. What is Icknield's WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

b. How would the market-value balance sheet change if Icknield retired all its debt? (Leave no cells blank - be certain to enter "0" wherever required.)

Reference no: EM131721467

Questions Cloud

Why do you think groupon declined google offer : Google reportedly offered to buy Groupon for $5 billion to $6 billion in November 2010-an offer that Groupon turned down.
Discuss the business requirements for solving that problem : determine the business requirements for solving that problem, including the requirements that any new technology needs to meet
Employee satisfaction survey in your organization indicates : The latest employee satisfaction survey in your organization indicates that employees are unhappy with some aspects of the organization.
Develop innovative approaches and creative thinking : MGMT6013 Managing Information System - Develop innovative approaches and creative thinking and Clearly describe the process used to analyse strategic issues
Problem-taxes and the cost of capital : Here is Icknield's market-value balance sheet (figures in $ millions):
How do i manage the careful balance : Kyle Simms just succeeded his father as the CEO of a consumer products firm in Mission Viejo, California. Prior to returning to the family business.
Process model for consensus decision-making option : Draw up a process Model for the Consensus Decision-Making Option.
Take care of packaging and shipping : One part-time employee will be hired to take care of packaging and shipping. This employee will be paid $10 per hour. He or she is estimated.
Define continuous growth stage of organizational life cycle : Sarah Jeffers lives in Austin, Texas, where she has owned a graphics design company for three years. She spends 12 hours a day at work micromanaging every.

Reviews

Write a Review

Finance Basics Questions & Answers

  Suppose both firms have identified a new project that will

corporation growth has 83000 in taxable income and corporation income has 8300000 in taxable income.a. what is the tax

  What is the optimal distribution plan

The supplies, demands, and transportation costs per unit are shown on the network. What is the optimal (cost minimizing) distribution plan?

  Analysis of aged accounts receivable

Based on 12/31/2014 analysis of aged accounts receivable, management agrees that the allowance should be adjusted to 4.3% of ending accounts receivable balance

  What are the main bond rating agencies and categories

Using information from a current newspaper or the WWW, what is the annualized yield on corporate bonds (high-quality, medium quality, high-yield) today?

  The risk-free interest rate for a half year maturity is 6

a stock has a current price of 20. the risk-free interest rate for a half year maturity is 6 and the dividend rate is

  Organizational identification merger

Please critique the following article with  the literature review, methodology and state key findings.

  Will trends in these ratios always move in same direction

Profits might be compared with sales, assets, or stockholders' equity. Why might all three bases be used? Will trends in these ratios always move in the same direction?

  Name the principal types of mortgage related securities

There are several ways that mortgages can be sold in the secondary market. Choose two and compare and contrast their length of distribution channel, relative ease of transaction, and efficiency as they relate to maximizing funds flow from sale.

  Fundation of corporate finance theories

To evaluate the corporate finance concept of market efficiency, equity issuance and shareholders' wealth as well as supported by the foundation of corporate finance theories.

  Your employer contributes 50 a week to your retirement plan

your employer contributes 50 a week to your retirement plan. assume that you work for your employer for another 20

  Describe forecasting of net income using ebit-eps analysis

Describe Forecasting of net income using EBIT-EPS analysis and what will be the forecast for Robert's year-end net income

  Determine how will donut shop s eps be effected

Executives of the Donut Shop have determined that the company s DOL is 3X and its DFL is 6X. According to this information, how will Donut Shop s EPS be effected if its amount of EBIT turns out to be 4 percent higher than expected

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd