You are a Chief financial Officer for Toyota Motor Corporation. The firm needs to purchase equipment...

  

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You are a Chief financial Officer for Toyota Motor Corporation. The firm needs to purchase equipment for its new production plant. The total cost of the equipment is $2,100,000. It is estimated that the after-tax cash inflows from the project will be $805,000 annually for five years. Toyota Motor Corporation has a market value debt-to-assets ratio of 30%. The firm's common stock has a beta of 1.19, the risk-free rate is 1%, and the expected return on the market portfolio is 6%. The firm's pre-tax cost of debt is 6%, and the flotation costs of equity and debt are 7% and 4%, respectively. The tax rate is 30%. Assume the project is of similar risk to the firm's existing operations. Based on the given information, please answer questions a, b, and c. a) What is Toyota Motor Corporation's weighted average cost of capital? (1 Point) b) What is Toyota Motor Corporation's weighted average floatation cost? (1 Point) c) What is the NPV for the project after adjusting for flotation costs? (3 Points) Chapter 15 Q5) You work for Toyota Motor Corporation as a Chief Financial Officer (CFO). Toyota Motor Corporation has 1,455,000 shares outstanding, and the company is about to issue 1,400,000 new shares in an IPO. The IPO price has been set at $15 per share and the underwriter spread is 7%. The IPO is a big success with investors and the share price rises to $22 the first day of trading. Based on the given information, please answer questions a, b, c, and d. Answer: a) b) c) d) How much did Toyota Motor Corporation raise from IPO? (2 Points) What is the market value of the Toyota Motor Corporation after the IPO? (1 Point) Suppose Toyota Motor Corporation could have issued shares directly to investors at their fair market value, in a perfect market with no underwriting spread and no underpricing. What would the share price have been in this case, if Toyota Motor Corporation raised the same amount as in question a. (2 Points) Comparing b and c, what is the cost to the firm's original investors due to market imperfections from the IPO? (1 Point) You are a Chief financial Officer for Toyota Motor Corporation. The firm needs to purchase equipment for its new production plant. The total cost of the equipment is $2,100,000. It is estimated that the after-tax cash inflows from the project will be $805,000 annually for five years. Toyota Motor Corporation has a market value debt-to-assets ratio of 30%. The firm's common stock has a beta of 1.19, the risk-free rate is 1%, and the expected return on the market portfolio is 6%. The firm's pre-tax cost of debt is 6%, and the flotation costs of equity and debt are 7% and 4%, respectively. The tax rate is 30%. Assume the project is of similar risk to the firm's existing operations. Based on the given information, please answer questions a, b, and c. a) What is Toyota Motor Corporation's weighted average cost of capital? (1 Point) b) What is Toyota Motor Corporation's weighted average floatation cost? (1 Point) c) What is the NPV for the project after adjusting for flotation costs? (3 Points) Chapter 15 Q5) You work for Toyota Motor Corporation as a Chief Financial Officer (CFO). Toyota Motor Corporation has 1,455,000 shares outstanding, and the company is about to issue 1,400,000 new shares in an IPO. The IPO price has been set at $15 per share and the underwriter spread is 7%. The IPO is a big success with investors and the share price rises to $22 the first day of trading. Based on the given information, please answer questions a, b, c, and d. Answer: a) b) c) d) How much did Toyota Motor Corporation raise from IPO? (2 Points) What is the market value of the Toyota Motor Corporation after the IPO? (1 Point) Suppose Toyota Motor Corporation could have issued shares directly to investors at their fair market value, in a perfect market with no underwriting spread and no underpricing. What would the share price have been in this case, if Toyota Motor Corporation raised the same amount as in question a. (2 Points) Comparing b and c, what is the cost to the firm's original investors due to market imperfections from the IPO? (1 Point)

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a To calculate the weighted average cost of capital WACC for Toyota Motor Corporation we need to consider the cost of equity cost of debt and the weig... View the full answer