Reference no: EM132959736
Terck, a leading pharmaceutical company, currently has a balance sheet that is as follows: Liability: Long-term bonds $1,000, Equity $1000, Total $1,000. Assets: Fixed Assets $1700, Current assets $300, Total $1,000. This firm income statement looks as follows: Revenue $1000, COGS $400, Depreciation $100, EBIT $500, Long-term interest expense $ 100, EBT $400, Taxs $200, Net Income $ 200. The firm's bonds are all 20 years bonds with a coupon rate of 10% that are selling at 90% of face value (the yield to maturity on these bonds is 11%). The stock are selling at a P/E ratio of 9 and have a beta of 1.25. The risk-free rate is 6%.
Problem a. What is the firms' current cost of equity?
Problem b. What is the firm's current after-tax cost of debt?
Problem c. What is the firms current weighted average cost of capital? Assume that management of Terek, which is very conservative, is condidering doing an equity-for-debt swap (ie. issuing $200 more of equity to retire $200 of debt). This action is expected to lower the firm's interest rate by 1% .
Problem d. What is the firms new cost of equity?
Problem e. What is the new WACC?
Problem f. What will the value of the firm be after the swap?
|
How new benefits will impact net pay
: An organization, located in Manitoba, will be enhancing the group benefits plan offered to employees in two months by adding accidental death and dismemberment
|
|
Which one makes the biggest impact on irr
: Variables for Appreciation, Annual Rent Increase and Interest Rate on the loan. Changing each of these variables up or down by 1%, which one makes the biggest
|
|
Addressing higher risk issues
: What happens when the implementation of risks is affected by the cost or the affect of having "easy wins"? Could this time and money have been better spent addr
|
|
Compute mm current earnings and profits for the year
: Compute MM's current earnings & profits for the year. MM Corp. is an accrual basis taxpayer. This year the business earned taxable income of $240,000.
|
|
What is the firms current weighted average cost of capital
: What is the firms current weighted average cost of capital? Assume that management of Terek, which is very conservative, is condidering doing an equity-for-debt
|
|
What is marys taxable capital gains for 2020
: What is Marys taxable capital gains for 2020 and In early 2020, she received 10 stock dividends when the FMV was $30 per share. In late 2020, she sold 100
|
|
How much do you have to earn to afford this house
: How much do you have to earn to afford this house and Will you still be able to afford the house if you have $300/mo in student debt payments
|
|
How much revenue must be generated to produce
: How much revenue must be generated to produce $80,000 of pretax earnings? How many pairs of glasses would this level of revenue represent
|
|
What is net income using variable costing
: What is net income using variable costing - During the year, Benton produces 53,000 snow shovels and sells 48,270 snow shovels
|