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 xxxxx s xxxx of xxxxxxx where xxx firms xxx rate xx Crypton xxxx of xxxxxxx is xxxxx to xxxxx decimal xxxxxx Pre xxx cost xx debt xx YTM xxx of xxx bond xxxx outflow x face xxxxx maturity xxxxxx PMT xxx YTM xxxx nper xxx PV xx After xxx cost xx debt xxxx of xxxxxx Dividend xx one xxxx Price xxxxx growth xxxx of xxxxxx Source xx capital xxxxxxxxxx of xxxxxxx a xxxx of xxxxxxx b xxxxx cost x x x Common xxxxx Debt xxxxxxx cost xx capital xxxxxxx Weighted xxxxxxx cost xx capital xxx target xxxxxxx structure xxx Jowers xxxxxxxxxxxxx is xxxxxx stock xxxxxxxxx stock xxx debt xx the xxxx of xxxxxx equity xxx the xxxx is xxx cost xx preferred xxxxx is xxx the xxxxxxxxx cost xx debt xx what xx Jower xxxxx s xxxx of xxxxxxx The xxxxx tax xxxx is xxxxx rsquo x WACC xx round xx three xxxxxxx places xxxxxx of xxxxxxxxxxxxxxxxx of xxxxxxx a xxxx of xxxxxxx b xxxxx cost x x x Common xxxxx Preferred xxxxx Debt xxxxxx WACC xxxx Before-tax xxxx of xxxx Tax xxxx After-tax xxxx of xxxx Problem xxxxxxx a xxxxxxxx to xxx following xxxxxxx ndash 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 rsquo x earnings xxxxx interest xxxxxxxx To xxxxxx the xxxxxxxx determine xxx earnings xxxxx taxes xxx compute xxx percentage xxxxxxxx in xxxxx earnings xxxx the xxxxxxx derived xx part x above x Why xxx the xxxxxxxxxx changes xxxxxxxxx Firm x Firm x Sales xxxxxxxx cost xxxxx cost xxxxxxxxx Ebit xxxxxxxx Proft xxxxxx tax xxxxx increases xx Firm x Firm xxxxxx Varibale xxxx Fixed xxxx Operating xxxx Interest xxxxx before xxx Increase xxxxxxxx The xxxxxxxxxx changes xxx different xxxxxxx of xxx interest xxxx B xx paying xx their xxxx interest xxx debt xxxxxxxx is xxxxxxxxxx of xxx sales xxxx data xxxxxx which xxxx has x more xxxxxxxxx financial xxxxxxxxx Problem xxxxxx you xxxx an xxxxxxxxxxxx that xx privately xxxx but xxxxx to xxxxxx operations xxxx have xxxxxxx to xxxxxx from xxxxxx Go xxxxxx through xx IPO xxxxxx Acquiring xxxxxxx organization xx the xxxx industry xxxxxx Merging xxxx another xxxxxxxxxxxx - xxxxxxx and xxxxxxxx the xxxxxxx above xxxxx recommendations xx the xxxxxxxxx and xxxxxxxxxx of xxxx approach xxxxx recommendations xx the xxxxxxxxxxxxx and xxxxxxx of xxxx approach xxxxx are xxx effects xx globalization xx financial xxxxxxxxx for xxxx option xxxxx are xxx factors xxxx contribute xx exchange xxxx risks xxxx each xxxxxx -What xxx the xxxxxxxxxx exchange xxxx risks xxxx each xxxxxxxxxxxx Go xxxxxx through xx IPOOpportunities xx the xxxxxxx goes xxxxxx then xx can xxx huge xxxxxx of xxxxx as xxx capital xxx money xxx be xxxxxxxx for xxx expansion xx the xxxxxxxxxx undertaking xx establishing xxxxxxxxxx industrial xxxxx to xxxxxxx more xxxxxxx of xxxxxxxx goods xxxxx ultimately xxxxxxxx the xxxxx and xxx profit xx the xxxxxxx will xxxxxx high xxxx the xxxxx are xxxx the xxxxxxx can xxxxxxx more xxxxx in xxx market xxx it xxx soon xxxxxx the xxxxxx leader xxx can xxxxxxx the xxxxx in xxx long xxx Further xxxxxxx of xxx expansion xx the xxxx it xxx produce xxxx goods xxx can xxxxxxx the xxxxxxxxx of xxxxx Threats xxxx the xxxxxxx is xxxxxx in xxx stock xxxxxxxx and xxxxx are xxxxxxxx shareholders xx the xxxxxx and xxx directors xxxx become xxxxxxxxxxx to xxxxx shareholders xxx value xx the xxxxx is xxxxxxxxx upon xxx general xxxxxxxx condition xx the xxxxxxx position xx financial xxxxxx and xxx financial xxxxxxxxxxx of xxx Company xxxxxxxxx the xxxxxxxx considerations xxxxxxxxx the xxxxxx value xx the xxxxx The xxxxxxxx to xx public xxxxxxx an xxx is x risk xxxxxxx the xxxxxxx is xxx known xx the xxxxxx and xxxxxxxxx may xx hesitant xx invest xxxxx money xx unknown xxxxxxxxx Strength xx an xxxxxxx public xxxxxxxx IPO xxx company xxxxx allow xx build xxx business xxxxx purchase xxx high-tech xxxxxxxxx and xxxx more xxxxxxxxx to xxxx with xxxx of xxx complex xxxx The xxx would xxxx allow xxxxxx to xxxx more xxxxxxxxx because xxxxxx shares xxx more xxxxxx bought xxx sold xxxxxxxxxxxxxxxx to xxxxxxxxxxx capital xx required xx complete xxx IPO xxxxxxx The xxxxxxxxx obligations xx going xxxxxx can xxxxx less xxxxx for xxxxx business xxxxxxxxxxx leaving xxx company xxxxxxxxxx until xxx IPO xx completed xxxxx public xxxxxxxx a xxxxx amount xx disclosure xxx to xxx requirements xxx outlay xx information xxxxxxx a xxxxxxxxxxx disadvantage xxxxxxx the xxxxxxx can xx longer xxxx rapid xxxxxxx or xxxx competitors xxx guard xx easily xxxx the xxxxxxxxxxx goes xxxxxx there xxx be xxxxxx effects xx financial xxxxxxxxx because xx IPO xxxx attract xxxxxxxxx from xxxxxx the xxxxx and xxxxxx stockholders xxxxx have xxxx influence xx financial xxxxxxxxx made xxxxxx the xxxxxxx Because xxx stock xxxxxx is xxxxxxxx global xxxxxxxx issues xxx affect xxxxxx prices xxxx in xxxx affect xxxxx rates xx increasing xx dropping xxxxxxx warning xxxx affecting xxx stability xx investor xxxxx 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 nbsp 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 xxxxx Here xxx company xxx merge xxxx another xxxxxxxxxxxx Here xxx company xxxx lose xxx identity xxxxxxxxxxxxx The xxxxxxx competition xx the xxxxxx will xx eliminated xxx the xxxxxxxx firm xxxx become xxx market xxxxxx and xxxx dictate xxx price xxxxx will xxxxxxx the xxxxx combining xxxx companies xxx reap xxx benefit xx large xxxxxxxxxx resulting xx high xxxxx of xxxxxxxxx of xxxxx and xxx profitability xxx growth xxxx will xx high xxx the xxxxxxxx distribution xxxxxxxx used xx both xxx firms xxx be xxxxxxxx to xxxxxxx the xxxxxxx result xx the xxxxxx By xxxxxx the xxxxxxx can xxxx explore xxx foreign xxxxxx Merger xxxx lead xx high xxxxxxxxx liquidity xxxxx will xxxxxx in xxxxxxxxxx of xxxx funds xxx research xxx development xxxxx will xxxxxxxxxx result xx high xxxxxxx finished xxxxxxx available xx the xxxxxxxx Threats xx the xxxxxx the xxxxxxx will xxxx its xxxxxxxx All xxx weakness xxxxxxxx of xxx Company xxxx be xxxxxxx over xx the xxxxxx companies xxxxx the xxxxxxxx firm xxxx become xxx market xxxxxx it xxx dictate xxxx price xxxxx will xx prejudicial xx the xxxxxxxx Combinations xx firm xxxx result xx monopoly xxxx is xxx persons xxxx control xxx entire xxxxxx Strength xxx strength xx this xxxxxx is xxxx the xxxx is xxx and xxxxxxx simple xxxxxxx the xxx companies xxxxx more xxxxxxxxxx power xxxx suppliers xxxxxxxxx and xxxxxxxxxxxx The xxxxxx the xxx companies xxxxxx the xxxx money xxxx have xx invest xx other xxxxxxxx the xxxxxx feel xxx be xxxxxxxxxx They xxx improve xxx profitability xxx culture xx the xxxxxx by xxxxxxxxxxxxx and xxxxx the xxxxxxxxx of xxxx of xxx two xxxxxx to xxxx more xxxxxx and xxxxxxxxx Weakness xxx companies xxx be xxxxxxxx by xxxxxxxxxx laws xxx become xxx large xxx monopolize xxx current xxxxxx The xxxxx of xxxx company xxx clash xx the xxxxxxxxx may xxxxxx in xxxxx approach xx business xxxxxxxxx which xxx cause xxxxxxxxxxxxxxx between xxxxxxxxx and xxxx may xxxxx the xxxxxxx in xxxxxx of xxxxxMore Articles From Finance
.ico)
.ico)
.ico)
.ico)
