Malkin corp. has no debt but can borrow at 8.75 percent. the firm’s wacc is currently 16 percent, and there is no corporate tax. required: (a what is malkin’s cost of equity?% (b if the firm converts to 15 percent debt, what will its cost of equity be?% (c if the firm converts to 50 percent debt, what will its cost of equity be?% (d what is malkin’s wacc in part (b and (c?
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Ответ:
A) 16%
B) 17.28%%
C) 23.25%
D) debt = 15%, WACC ⇒ 16%
debt = 50%, WACC ⇒ 16%
Explanation:
WACC = weighted average cost of capital is the rate at which the company effectively finances its assets.
The formula used to calculate WACC is:
WACC = {[total equity/(total debt + equity)] x cost of equity} + {[total debt/(total debt + equity)] x cost of debt x (1 - tax rate)}
A) equity = 100%
WACC = cost of equity = 16%
B) Modigliani-Miller proposition II, changes the cost of equity once debt increases using the following formula
= old cost of equity + [(old cost of equity - cost of debt)x(debt/equity)x(1 - taxes)]
equity = 85%, debt = 15%
cost of equity = 16% + [(16% - 8.75)x(0.15/0.85)] = 16% + 1.28% = 17.28%
C) equity = 50%, debt = 50%
cost of equity = 16% + [(16% - 8.75)x(.5/.5)] = 16% + 7.25% = 23.25%
D) Since there are no corporate taxes, the WACC will not decrease by taking debt.
equity = 85%, debt = 15%
WACC = (0.85 x 17.28%) + (.15 x 8.75%) = 14.69% + 1.31% = 16%
equity = 85%, debt = 15%
WACC = (0.50 x 23.25%) + (.5 x 8.75%) = 11.625% + 4.375% = 16%
Ответ:
Calculate the additional cash needed for the six months. When there is a cash shortfall (the shortfall/surplus cash calculation is less than zero), additional cash must be obtained from a loan to cover all of the monthly expenses. Therefore, additional cash needed is equal to any cash shortfall. It is zero if there is a cash surplus. The additional cash needed should be a positive number even though a shortfall will be a negative number in the model (row 26).
Explanation: