Suppose Enviro-tech is attempting to estimate its cost of capital (WACC). The company has 500,000 shares...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Suppose Enviro-tech is attempting to estimate its cost of capital (WACC). The company has 500,000 shares of stock outstanding that currently sells for $40 per share. In addition, the company has 15,000 bonds outstanding with 15 years left until maturity that pay a $1,000 par value and an annual coupon of 5.0%. Management believes these bonds would sell for $875.00 in today's market. The company's beta is 0.85, the risk-free rate is 3% and the market risk premium is 7%. The tax rate is 25%. a. What is the total market value of the company's stock (MVE)? b. What is the total market value of the company's bonds (MVD)? c. What is the total market value of the firm's financial contacts (total invested capital)? d. Estimate the percentage of the company financed with debt (wd) e. Estimate the percentage of the company financed with equity (ws) f. Estimate the firm's cost of debt (rd) g. Estimate the firm's cost of equity (r) using the CAPM. h. Compute an estimate of the firm's weighted average cost of capital (WACC) Suppose Enviro-tech is attempting to estimate its cost of capital (WACC). The company has 500,000 shares of stock outstanding that currently sells for $40 per share. In addition, the company has 15,000 bonds outstanding with 15 years left until maturity that pay a $1,000 par value and an annual coupon of 5.0%. Management believes these bonds would sell for $875.00 in today's market. The company's beta is 0.85, the risk-free rate is 3% and the market risk premium is 7%. The tax rate is 25%. a. What is the total market value of the company's stock (MVE)? b. What is the total market value of the company's bonds (MVD)? c. What is the total market value of the firm's financial contacts (total invested capital)? d. Estimate the percentage of the company financed with debt (wd) e. Estimate the percentage of the company financed with equity (ws) f. Estimate the firm's cost of debt (rd) g. Estimate the firm's cost of equity (re) using the CAPM. h. Compute an estimate of the firm's weighted average cost of capital (WACC) Suppose Enviro-tech is attempting to estimate its cost of capital (WACC). The company has 500,000 shares of stock outstanding that currently sells for $40 per share. In addition, the company has 15,000 bonds outstanding with 15 years left until maturity that pay a $1,000 par value and an annual coupon of 5.0%. Management believes these bonds would sell for $875.00 in today's market. The company's beta is 0.85, the risk-free rate is 3% and the market risk premium is 7%. The tax rate is 25%. a. What is the total market value of the company's stock (MVE)? b. What is the total market value of the company's bonds (MVD)? c. What is the total market value of the firm's financial contacts (total invested capital)? d. Estimate the percentage of the company financed with debt (wd) e. Estimate the percentage of the company financed with equity (ws) f. Estimate the firm's cost of debt (rd) g. Estimate the firm's cost of equity (r) using the CAPM. h. Compute an estimate of the firm's weighted average cost of capital (WACC) Suppose Enviro-tech is attempting to estimate its cost of capital (WACC). The company has 500,000 shares of stock outstanding that currently sells for $40 per share. In addition, the company has 15,000 bonds outstanding with 15 years left until maturity that pay a $1,000 par value and an annual coupon of 5.0%. Management believes these bonds would sell for $875.00 in today's market. The company's beta is 0.85, the risk-free rate is 3% and the market risk premium is 7%. The tax rate is 25%. a. What is the total market value of the company's stock (MVE)? b. What is the total market value of the company's bonds (MVD)? c. What is the total market value of the firm's financial contacts (total invested capital)? d. Estimate the percentage of the company financed with debt (wd) e. Estimate the percentage of the company financed with equity (ws) f. Estimate the firm's cost of debt (rd) g. Estimate the firm's cost of equity (re) using the CAPM. h. Compute an estimate of the firm's weighted average cost of capital (WACC)
Expert Answer:
Answer rating: 100% (QA)
Lets calculate each of the components a Total Market Value of the Companys Stock MVE MVE Number of S... View the full answer
Related Book For
Financial Reporting Financial Statement Analysis and Valuation a strategic perspective
ISBN: 978-1337614689
9th edition
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Posted Date:
Students also viewed these finance questions
-
There are six cybercrime categories indicated in the lecture, as indicated by Maras (2016a). For this discussion forum, you will examine whether certain types of cybercrime are more common than...
-
Find the Taylor Series of the following functions expanded at x = 0. (a) f(x) = x exp(x/2) + 12x (b) f(x) = cos(x)1 I (c) f(x) = (x + 1)
-
Should Lambda Inc. accept the special order? Based on the estimated financial impact of the special order on the master budget, determine whether Lambda Inc. should accept the special order. Assume...
-
How can we use these theories to analyze factors which influence the longevity and adaptability of these organizations in changing landscapes?
-
Evaluate the indefinite integral. Illustrate and check that your answer is reasonable by graphing both the function and its anti-derivative (take C = 0). cos X xp- 1 + sin x 39. 40.
-
Repeat Problem 7.26 for turbulent flow. Explain your results.
-
The following trial balance of Jeana Jones Tutoring Service, Inc., at August 31, 2011, does not balance: Investigation of the accounting records reveals that the bookkeeper: Requirement 1. Prepare...
-
Briefly describe some of the similarities and differences between GAAP and IFRS with respect to the accounting for stockholders equity.
-
A company issues $60,000 of 5%, 10-year bonds dated January 1 that pay interest semiannually on each June 30 and December 31. If the issuer accepts $59,000 for the bonds, the issuer will record the...
-
John Chang operates a plumbing business as a proprietorship (John Chang Plumbing). The following events took place during the month of June 2022: Required Identify the accounting assumption,...
-
BUS132 Project 6 You are the budget expert for R & S Manufacturing Company. The Master Budget and Actual Results for 2013 are listed below. Your general manger, however, wants a comparison based more...
-
Pizza Warehouse budgeted to sell 600 large pizzas for $20 each in October. It actually sold 620 pizzas at an average of $19 each Calculate the following figures. Required a) Static budget revenue b)...
-
Regarding GAAP and accrual vs. cash basis accounting. Which method is the most reliable financial results? Why? Which method will provides the most reliable financial results? Accrual basis is...
-
A 4.00-g copper coin at 22.5C drops 55.0 m to the ground. (a) Assuming 55.0% of the change in gravitational potential energy of the coin-Earth system goes into increasing the internal energy of the...
-
Multiply. (10+5)(3/6+2)
-
Kaspar Industries expects credit sales for January, February, and March to be $211,000, $270,600, and $315,300, respectively. It is expected that 75% of the sales will be collected in the month of...
-
The following data was taken from the books as at December 31 st of cullumber inc . Cash $ 14,000, Income tax expense 5600, Sales revenue 104400, Inventory 31600, Accounts payable 32950, Operating...
-
Charles owns an office building and land that are used in his trade or business. The office building and land were acquired in 1978 for $800,000 and $100,000, respectively. During the current year,...
-
Exhibits 1.191.21 of Integrative Case 1.1 (Chapter 1) present the financial statements for Walmart for 20122015. In addition, the website for this text contains Walmarts December 31, 2015, Form 10-K....
-
Using the evidence presented in Exhibit 14.8, describe the extent to which the market is efficient with respect to quarterly earnings surprises during the 60 trading days prior to quarterly earnings...
-
The chapter describes valuation using free cash flows for all debt and equity stakeholders as well as free cash flows for equity shareholders. For each approach, give one example of valuation...
-
Consider the regression model with a single regressor: \(Y_{i}=\beta_{0}+\beta_{1} X_{i}+u_{i}\). Suppose the least squares assumptions in Key Concept 4.3 are satisfied. a. Show that \(X_{i}\) is a...
-
In their study of the effectiveness of cardiac catheterization, McClellan, McNeil, and Newhouse (1994) used as an instrument the difference in distances to cardiac catheterization and regular...
-
In his study of the effect of incarceration on crime rates, suppose Levitt had used the number of lawyers per capita as an instrument. Would this instrument be relevant? Would it be exogenous? Would...
Study smarter with the SolutionInn App