Question.3275 - Problem 1: Weighted average cost of capital: Crypton Electronics has a capital structure consisting of 42% common stock and 58% debt. A debt issue of $1000 par value, 5.8% bonds that mature in 15 years and pay annual interest will sell for $976. Common stock of the firm is currently selling for $29.68 per share and the firm expects to pay a $2.18 dividend next year. Dividends have grown at the rate of 4.7% per year and are expected to continue to do so for the foreseeable future. What is Crytpon’s cost of capital where the firms tax rate is 30%? Cryptons cost of capital is ____% (round to three decimal places)Problem 2: Weighted average cost of capital: The target capital structure for Jowers Manufacturing is 47% common stock, 15% preferred stock, and 38% debt. If the cost of common equity for the firm is 19.5%, the cost of preferred stock is 11.6%, and the beforetax cost of debt is 9.3%, what is Jower’s cost of capital? The firms tax rate is 34%. Jower’s WACC is _____% (round to three decimal places)Problem 3: Prepare a response to the following problem – Firm A has $10,000 in assets entirely financed with equity. Firm B also has $10,000 in assets, but these assets are financed by $5,000 in debt (with a 10% rate of interest) and $5,000 in equity. Both firms sell 10,000 units of output at $2.50 per unit. The variable cost of production are $1, and fixed production costs are $12,000. (To ease the calculation, assume no income tax). Make sure to show all calculations and clearly mark them. a) What is the operating income (EBIT) for both firms b) What are the earnings after interest? c) If sales increase by 10% to 11,000 units, by what percentage will each firm’s earnings after interest increase? To answer the question, determine the earnings after taxes and compute the percentage increase in these earnings from the answers derived in part (b) above. d) Why are the percentage changes different?Problem 4: Assume you have an organization that is privately held but wants to expand operations. They have 3 options to choose from: Option 1: Go public through an IPO Option 2: Acquiring another organization in the same industry Option 3: Merging with another organization - Compare and contrast the options above -Make recommendations on the strengths and weaknesses of each approach -Make recommendations on the opportunities and threats of each approach -What are the effects of globalization on financial decisions for each option -What are the factors that contribute to exchange rate risks with each option -What are the mitigating exchange rate risks with each option
Answer Below:
Problem xxxxxxxx average xxxx of xxxxxxx Crypton xxxxxxxxxxx has x capital xxxxxxxxx consisting xx common xxxxx and xxxx A xxxx issue xx par xxxxx bonds xxxx mature xx years xxx pay xxxxxx interest xxxx sell xxx Common xxxxx of xxx firm xx currently xxxxxxx for xxx share xxx the xxxx expects xx pay x dividend xxxx year xxxxxxxxx have xxxxx at xxx rate xx per xxxx and xxx expected xx continue xx do xx for xxx foreseeable xxxxxx What xx Crytpon x cost xx capital xxxxx the xxxxx tax xxxx is xxxxxxx cost xx capital xx round xx three xxxxxxx places xxx tax xxxx of xxxx is xxx IRR xx the xxxx cash xxxxxxx - xxxx value xxxxxxxx Coupon xxx IRR xxx Rate xxxx PMT xx FV xxxxx Tax xxxx of xxxx Cost xx equity xxxxxxxx in xxx year xxxxx today xxxxxx Cost xx equity xxxxxx of xxxxxxx Proportion xx capital x Cost xx capital x Total xxxx a x b xxxxxx stock xxxx Crypton xxxx of xxxxxxx Problem xxxxxxxx average xxxx of xxxxxxx The xxxxxx capital xxxxxxxxx for xxxxxx Manufacturing xx common xxxxx preferred xxxxx and xxxx If xxx cost xx common xxxxxx for xxx firm xx the xxxx of xxxxxxxxx stock xx and xxx beforetax xxxx of xxxx is xxxx is xxxxx s xxxx of xxxxxxx The xxxxx tax xxxx is xxxxx s xxxx is xxxxx to xxxxx decimal xxxxxx Source xx capitalProportion xx capital x Cost xx capital x Total xxxx a x b xxxxxx stock xxxxxxxxx stock xxxx Jowers xxxx Note xxxxxxxxxx cost xx debt xxx rate xxxxxxxxx cost xx debt xxxxxxx Prepare x response xx the xxxxxxxxx problem xxxx A xxx in xxxxxx entirely xxxxxxxx with xxxxxx Firm x also xxx in xxxxxx but xxxxx assets xxx financed xx in xxxx with x rate xx interest xxx in xxxxxx Both xxxxx sell xxxxx of xxxxxx at xxx unit xxx variable xxxx of xxxxxxxxxx are xxx fixed xxxxxxxxxx costs xxx To xxxx the xxxxxxxxxxx assume xx income xxx Make xxxx to xxxx all xxxxxxxxxxxx and xxxxxxx mark xxxx a xxxx is xxx operating xxxxxx EBIT xxx both xxxxx b xxxx are xxx earnings xxxxx interest x If xxxxx increase xx to xxxxx by xxxx percentage xxxx each xxxx s xxxxxxxx after xxxxxxxx increase xx answer xxx question xxxxxxxxx the xxxxxxxx after xxxxx and xxxxxxx the xxxxxxxxxx increase xx these xxxxxxxx from xxx answers xxxxxxx in xxxx b xxxxx d xxx are xxx percentage xxxxxxx different xxxx A xxxx B xxxxx Variable xxxx Fixed xxxx Operating xxxx Interest xxxxx before xxx Sales xxxxxxxxx by xxxx A xxxx BSales xxxxxxxx cost xxxxx cost xxxxxxxxx Ebit xxxxxxxx Proft xxxxxx tax xxxxxxxx increase xxx percentage xxxxxxx are xxxxxxxxx because xx the xxxxxxxx Firm x is xxxxxx on xxxxx debt xxxxxxxx The xxxx interest xx regardless xx the xxxxx This xxxx proves xxxxx firm xxx a xxxx favorable xxxxxxxxx advantage xxxxxxx Assume xxx have xx organization xxxx is xxxxxxxxx held xxx wants xx expand xxxxxxxxxx They xxxx options xx choose xxxx Option xx public xxxxxxx an xxx Option xxxxxxxxx another xxxxxxxxxxxx in xxx same xxxxxxxx Option xxxxxxx with xxxxxxx organization x Compare xxx contrast xxx options xxxxx -Make xxxxxxxxxxxxxxx on xxx strengths xxx weaknesses xx each xxxxxxxx -Make xxxxxxxxxxxxxxx on xxx opportunities xxx threats xx each xxxxxxxx -What xxx the xxxxxxx of xxxxxxxxxxxxx on xxxxxxxxx decisions xxx each xxxxxx -What xxx the xxxxxxx that xxxxxxxxxx to xxxxxxxx rate xxxxx with xxxx option xxxxx are xxx mitigating xxxxxxxx rate xxxxx with xxxx optionOption xx public xxxxxxx an xxxxxxxxxxxxxxxx If xxx Company xxxx public xxxx it xxx get xxxx amount xx money xx the xxxxxxx The xxxxx can xx utilized xxx the xxxxxxxxx of xxx industrial xxxxxxxxxxx by xxxxxxxxxxxx additional xxxxxxxxxx units xx produce xxxx quantum xx finished xxxxx which xxxxxxxxxx increase xxx sales xxx the xxxxxx of xxx Company xxxx become xxxx When xxx sales xxx more xxx Company xxx achieve xxxx share xx the xxxxxx and xx can xxxx become xxx market xxxxxx and xxx dictate xxx price xx the xxxx run xxxxxxx because xx the xxxxxxxxx of xxx unit xx can xxxxxxx more xxxxx and xxx achieve xxx economies xx scale xxxxxxx Once xxx Company xx listed xx the xxxxx exchange xxx there xxx numerous xxxxxxxxxxxx in xxx market xxx the xxxxxxxxx will xxxxxx accountable xx those xxxxxxxxxxxx The xxxxx of xxx share xx dependent xxxx the xxxxxxx economic xxxxxxxxx of xxx country xxxxxxxx of xxxxxxxxx market xxx the xxxxxxxxx performance xx the xxxxxxx Therefore xxx external xxxxxxxxxxxxxx influence xxx market xxxxx of xxx share xxx decision xx go xxxxxx through xx IPO xx a xxxx because xxx company xx not xxxxx on xxx market xxx investors xxx be xxxxxxxx to xxxxxx their xxxxx in xxxxxxx companies xxxxxxxx In xx initial xxxxxx offering xxx the xxxxxxx would xxxxx to xxxxx new xxxxxxxx space xxxxxxxx new xxxxxxxxx equipment xxx hire xxxx employees xx work xxxx more xx the xxxxxxx jobs xxx IPO xxxxx also xxxxx owners xx gain xxxx liquidity xxxxxxx public xxxxxx are xxxx easily xxxxxx and xxxx WeaknessesAccess xx significant xxxxxxx is xxxxxxxx to xxxxxxxx the xxx process xxx financial xxxxxxxxxxx of xxxxx public xxx leave xxxx money xxx other xxxxxxxx initiatives xxxxxxx the xxxxxxx vulnerable xxxxx the xxx is xxxxxxxxx Going xxxxxx requires x large xxxxxx of xxxxxxxxxx due xx SEC xxxxxxxxxxxx The xxxxxx of xxxxxxxxxxx becomes x competitive xxxxxxxxxxxx because xxx company xxx no xxxxxx make xxxxx changes xx take xxxxxxxxxxx off xxxxx as xxxxxx Once xxx corporation xxxx public xxxxx may xx global xxxxxxx on xxxxxxxxx decisions xxxxxxx an xxx will xxxxxxx investors xxxx around xxx world xxx common xxxxxxxxxxxx would xxxx some xxxxxxxxx on xxxxxxxxx decisions xxxx within xxx company xxxxxxx the xxxxx market xx volatile xxxxxx economic xxxxxx can xxxxxx market xxxxxx that xx turn xxxxxx stock xxxxx by xxxxxxxxxx or xxxxxxxx without xxxxxxx thus xxxxxxxxx the xxxxxxxxx of xxxxxxxx s xxxxx in x corporation xxx company xxxxxx also xxxxxxxx the xxxxxxxxxxx and xxxxxxxxxxx in xxxxxxxx and xxxxxx exchange xxxxx with xxxxx countries xxxx considering xx IPO xxxxxxx the xxxxx market xx open xx investors xxxxxxxx b xxxx can xxxxxxx another xxxxxxx in xxx same xxxxxxxx -The xxxxxxx can xxxxxxx another xxxxxxx in xxx same xxxxxxxx provided xxx company xxx sound xxxxxxxxx base xxxxxxxxxxxxx The xxxxxxx can xxxxxxx the xxxxxxx Company xx order xx eliminate xxx competition xx the xxxxxx For xxxxxxx the xxxxxxx X xx posing xxxxxx competition xxxx the xxxxxxx can xxxxxxx the xxxx to xxxxxxxxx the xxxxxxxxxxx and xx become xxx major xxxxxx in xxx market xx the xxxxxxx goes xxx expansion xx existing xxxxxxxxxxxxx facility xxxxxxx of xxxxxxxxxxx then xxx the xxxxxxxxxx needed xxx manufacturing xxxxxxxxx like xxxxx and xxxxxxxxx land xxx building xxxx force xx do xxx job xxxxxxxx to xxxxxx the xxxx need xx be xxxxxxxx afresh xxxxxxx here xxx the xxxxxxxxxx are xxxxxxx there xxx the xxxxxxx just xxxxxx the xxxxxxxx consideration xx the xxxxxxx can xxxxxxx those xxxxxxxxxx It xxxx definitely xxxxxx the xxxxx of xxx company xx the xxxxxx and xxxxx is xxxxxxxxxxx to xxxxxx market xxxxxx Further xxx company xxx use xxx existing xxxxxxxxxxxx facility xx the xxxxxxx which xx being xxxxxxxx Threats xxxxxxx of xxx acquisition xxx resulting xxxxxxx will xxxxxx the xxxxxxxxx loss xx the xxxx in xxxxx acquisition xxxx place xxx the xxxx might xxxxxxxx for xxxx years xxxxxxxxxx some xxxxx the xxxxxxx can xxxx the xxxxxxxx financial xxxxxx The xxxxxxx which xx being xxxxxxxx might xxxx obsolete xxxxxxxxx or xxx machinery xxxxx might xxxxxxxx the xxxx of xxxxxxxxxx by xxxxxxxx repairs xx the xxxxxxx might xx facing xxxxx unrest xxxxx internal xxxxxxxx will xxxxxx the xxxxxxxxx company xxxxx acquisition xxx market xxxxx of xxx share xxxx decrease xxxxxxxx The xxxxxxxxx and xxxxxxxxxx of xxxx company xxx displayed xxx the xxx owners xx view xxx grow xx a xxxxxxx power xx the xxxxxx The xxx other xxxxxxxx of xxxxxxxxxxxx and xx a xxxxxx distributor xxxx have xxxx power xxxx suppliers xxx pricing xxxxxxxxxx They xxx able xx keep xxxxxxx companies xxx of xxxxx marketing xxxxx as xxxx have x larger xxxxxxxx scale xxxx build xxxxxxxxx between xxx companies xxx are xxxx to xxx for xxxxxxxxxxxx of xxx properties xx companies xxxx its xxxxxx and xx has xxxxxx or xx liquidity xxxxxxxx Weaknesses xxxxx may xx duplication xx efforts xxxxxxx the xxxxxxxxxx and xxxxxxxxxxx When xx if xxxxx departments xxx management xxxxxxxxx are xxxxxx they xxxxxxxxxxx of xxxxxxx is xxxx and xxxx will xxxxxx the xxxxx of xxx employees xxx conflicts xx culture xxxxxxx the xxx cultures xxx be xxxx due xx the xxxx that xxxx may xxx to xx competing xxxxxxxxx And xxxxxxx the xxxxxxxxx company xxx have xx pay x larger xxxxx to xxxxxxx the xxx company xxx company xxxxxx avoid xxxxxxxxxxx pursuit xx an xxxxxxxxxxxxx location xxx to xxx legal xxx financial xxxx associated xxxx globalization xxxxx globalization xxxxx have xxxx financial xxxxxxxxxx such xx saving xxxxx and xxxxxxxx production xxxx it xxxx runs xxxxx risks xxxx can xxxxxxxxxx company xxxxxxxx such xx violating xxxxx labor xxx other xxxx c xxxx can xxxxx with xxxxxxx organization xxxx the xxxxxxx can xxxxx with xxxxxxx organization xxxx the xxxxxxx will xxxx its xxxxxxxx Opportunities xxx overall xxxxxxxxxxx in xxx market xxxx be xxxxxxxxxx and xxx combined xxxx will xxxxxx the xxxxxx leader xxx will xxxxxxx the xxxxx which xxxx benefit xxx firms xxxxxxxxx Both xxxxxxxxx can xxxx the xxxxxxx of xxxxx production xxxxxxxxx in xxxx level xx economies xx scale xxx the xxxxxxxxxxxxx and xxxxxx rate xxxx be xxxx All xxx existing xxxxxxxxxxxx facility xxxx by xxxx the xxxxx can xx combined xx achieve xxx greater xxxxxx in xxx market xx merger xxx company xxx also xxxxxxx the xxxxxxx market xxxxxx will xxxx to xxxx financial xxxxxxxxx which xxxx result xx allocation xx more xxxxx for xxxxxxxx and xxxxxxxxxxx which xxxx ultimately xxxxxx in xxxx quality xxxxxxxx product xxxxxxxxx to xxx customer xxxxxxx In xxx merger xxx company xxxx lose xxx identity xxx the xxxxxxxx problems xx the xxxxxxx will xx carried xxxx to xxx merged xxxxxxxxx Since xxx combined xxxx will xxxxxx the xxxxxx leader xx can xxxxxxx high xxxxx which xxxx be xxxxxxxxxxx to xxx customer xxxxxxxxxxxx of xxxx will xxxxxx in xxxxxxxx That xx few xxxxxxx will xxxxxxx the xxxxxx market xxxxxxxx The xxxxxxxx of xxxx option xx that xxx cost xx low xxx legally xxxxxx Merging xxx two xxxxxxxxx bring xxxx bargaining xxxxx with xxxxxxxxx customers xxx distributors xxx larger xxx two xxxxxxxxx become xxx more xxxxx they xxxx to xxxxxx in xxxxx ventures xxx owners xxxx may xx profitable xxxx can xxxxxxx the xxxxxxxxxxxxx and xxxxxxx of xxx stores xx restructuring xxx using xxx strengths xx each xx the xxx stores xx gain xxxx assets xxx customers xxxxxxxx The xxxxxxxxx may xx affected xx anit-trust xxxx and xxxxxx too xxxxx and xxxxxxxxxx the xxxxxxx market xxx goals xx each xxxxxxx may xxxxx as xxx co-owners xxx differ xx their xxxxxxxx to xxxxxxxx scenarios xxxxx may xxxxx dissatisfaction xxxxxxx employees xxx they xxx leave xxx company xx search xx otherMore Articles From Finance
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