1. The following is a condensed market value balance sheet for Twitter: Total assets = $15,000,000...

  

Transcribed Image Text:

1. The following is a condensed market value balance sheet for Twitter: Total assets = $15,000,000 Total debt = Total equity = $6,000,000 $9,000,000 What is Twitters cost structure (i.e., percent debt and equity)? 2. Twitter is able to sell $4,000,000 of 15-year 9% coupon bonds (annual interest payments) at $985 per bond. After these bonds are sold, Twitter can sell an additional $3,000,000 of 8-year 10% coupon bonds (annual interest) at a price of $930 per bond. Twitter's marginal tax rate is 25%. What is Twitter's after tax cost of debt at the two borrowing rates? 3 Twitter plans to pay a dividend of $1 next year and it's stock is currently selling for $20. Twitter's stock price and dividend are expected to grow at a constant 3%. Using the dividend growth model, what is the cost of Twitter's internal equity? 4 Twitter has a Beta value of 0.98. The risk free rate of interest is 0.89% and the anticipated market rate of return is 7.13%. Using the CAPM, what is the cost of Twitter's internal equity? 5. Calculate Twitter's weighted average cost of capital for the first $4,000,000 of debt and the second $3,000,000 of debt. Use cost of equity computed in #3. 1. The following is a condensed market value balance sheet for Twitter: Total assets = $15,000,000 Total debt = Total equity = $6,000,000 $9,000,000 What is Twitters cost structure (i.e., percent debt and equity)? 2. Twitter is able to sell $4,000,000 of 15-year 9% coupon bonds (annual interest payments) at $985 per bond. After these bonds are sold, Twitter can sell an additional $3,000,000 of 8-year 10% coupon bonds (annual interest) at a price of $930 per bond. Twitter's marginal tax rate is 25%. What is Twitter's after tax cost of debt at the two borrowing rates? 3 Twitter plans to pay a dividend of $1 next year and it's stock is currently selling for $20. Twitter's stock price and dividend are expected to grow at a constant 3%. Using the dividend growth model, what is the cost of Twitter's internal equity? 4 Twitter has a Beta value of 0.98. The risk free rate of interest is 0.89% and the anticipated market rate of return is 7.13%. Using the CAPM, what is the cost of Twitter's internal equity? 5. Calculate Twitter's weighted average cost of capital for the first $4,000,000 of debt and the second $3,000,000 of debt. Use cost of equity computed in #3.

Answer rating: 100% (QA)

1 To find Twitters cost structure we need to calculate the percent debt and equity Percent Debt Tota... View the full answer