Touring enterprises inc has a capital structure consisting

Assignment Help Accounting Basics

Reference no: EM13588405

Touring Enterprises, Inc., has a capital structure consisting of $18 million in long-term debt and $7 million in common equity. There is no preferred stock outstanding.The interest rate paid on the long-term debt is 10%. The firm is in the 35% tax bracket.

On the common equity, the Company pays an annual dividend of $1.20 and expects to increase the dividend by 5% per year. The market price of the stock is $50.

Based on this information, answer the following questions:Calculate Touring Enterprises' weighted average cost of capital .

Work as follows: first, compute the after-tax cost of debt, then compute the cost of equity. Cite both formulas, and show all your work.
Determine the weightings of debt and equity in the capital structure.
Using your answers to the above questions, calculate the WACC.

2. If Touring Enterprises were to increase the percentage of debt in its capital structure, what would happen to the WACC ?No calculation is necessary- simply provide a short, non-numeric response.

3. Identify and explain the benefits and risks of debt financing. A two-paragraph answer will suffice.

Reference no: EM13588405

Questions Cloud

If s2 moves with a speed of 064 c with respect to a rest : question a rod of length 1.76 m is at rest in an inertial frame s2.if s2 moves with a speed of 0.64 c with respect to a

Paloma co stars has four employees fica social security : paloma co. stars has four employees. fica social security taxes are 6.2 of the first 110100 paid to each employee and

The financial statements presents a company to the public : the financial statements presents a company to the public in financial terms. which financial statement identifies how

In a nuclear magnetic resonance spectrometer a 15mh coil is : question in a nuclear magnetic resonance spectrometer a 15mh coil is designed to detect an emf oscillating at 400mhz.

Touring enterprises inc has a capital structure consisting : touring enterprises inc. has a capital structure consisting of 18 million in long-term debt and 7 million in common

If instead the noncontrolling interest shares of devine had : the holtz corporation acquired 80 percent of the 100000 outstanding voting shares of devine inc. for 7.50 per share on

Find the time between explosions according to classical : two firecrackers explode at the same place in a rest frame with a time separation of 20 s in that frame.find the time

How does an acidic buffer solution reacts when we add : how does an acidic buffer solution reacts when we add strong acid or base to it? and what are the diffrences in the

A deep-space probe moves away from earth with a speed of : question a deep-space probe moves away from earth with a speed of 0.48 c. an antenna on the probe requires 2.4 s probe

User Account

All Pages