HomeworkLib
Question

Upton Umbrellas has a cost of equity of 12.7 percent, the YTM on the company's bonds...

Upton Umbrellas has a cost of equity of 12.7 percent, the YTM on the company's bonds is 5.6 percent, and the tax rate is 40 percent. The company's bonds sell for 104.3 percent of par. The debt has a book value of $441,000 and total assets have a book value of $963,000. If the market-to-book ratio is 3.07 times, what is the company's WACC?

Multiple Choice

  • 10.62%

  • 10.37%

  • 8.49%

  • 5.44%

  • 8.33%

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

Market value of debt = 1.043($441000) = $459963

Book value of equity = $963000 − 441000 = $522000

Market value of equity = 3.07($522000) = $1602540

Market value of company = $459963 + 1602540 = 2062503

WACC = ($1602540/$2062503)*12.7% + 5.6%($459963/$2062503)(1 − 0.40)

WACC = 9.8677% + 0.74932%

WACC = 10.62%

answer is a

0 0
Add a comment
Know the answer?
Add Answer to:
Upton Umbrellas has a cost of equity of 12.7 percent, the YTM on the company's bonds...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Upton Umbrellas has a cost of equity of 12.1 percent, the YTM on the company's bonds...

    Upton Umbrellas has a cost of equity of 12.1 percent, the YTM on the company's bonds is 6.2 percent, and the tax rate is 39 percent. The company's bonds sell for 103.7 percent of par. The debt has a book value of $423,000 and total assets have a book value of $957,000. If the market-to-book ratio is 2.89 times, what is the company's WACC? 9.96% 5.62% 8.49% 10.26% 8.35%

  • Upton Umbrellas has a cost of equity of 11.2 percent, the YTM on the company's bonds...

    Upton Umbrellas has a cost of equity of 11.2 percent, the YTM on the company's bonds is 5.8 percent, and the tax rate is 39 percent. The company's bonds sell for 93.2 percent of par. The debt has a book value of $396,000 and total assets have a book value of $948,000. If the market-to-book ratio is 2.62 times, what is the company's WACC?

  • Upton Umbrellas has a cost of equity of 12.1 percent, the YTM on the company's bonds...

    Upton Umbrellas has a cost of equity of 12.1 percent, the YTM on the company's bonds is 6.2 percent, and the tax rate is 39 percent. The company's bonds sell for 103.7 percent of par. The debt has a book value of $423,000 and total assets have a book value of $957,000. If the market-to-book ratio is 2.89 times, what is the company's WACC?

  • Upton Umbrellas has a cost of equity of 12.4 percent, the YTM on the company's bonds...

    Upton Umbrellas has a cost of equity of 12.4 percent, the YTM on the company's bonds is 5.9 percent, and the tax rate is 40 percent. The company's bonds sell for 103.8 percent of par. The debt has a book value of $432,000 and total assets have a book value of $960,000. If the market-to-book ratio is 2.98 times, what is the company's WACC?

  • Upton Umbrellas has a cost of equity of 11.5 percent, the YTM on the company's bonds...

    Upton Umbrellas has a cost of equity of 11.5 percent, the YTM on the company's bonds is 6.1 percent, and the tax rate is 39 percent. The company's bonds sell for 103.1 percent of par. The debt has a book value of $405,000 and total assets have a book value of $951,000. If the market-to-book ratio is 2.71 times, what is the company's WACC? 6 14 points Multiple Choice Skipped 8.13% eBook Print References 9.79% 9.49% 8.24% 5.43%

  • Upton Umbrellas has a cost of equity of 11.5 percent, the YTM on the company's bonds is 6.1 percent, and the tax rate i...

    Upton Umbrellas has a cost of equity of 11.5 percent, the YTM on the company's bonds is 6.1 percent, and the tax rate is 39 percent. The company's bonds sell for 103.1 percent of par. The debt has a book value of $405,000 and total assets have a book value of $951,000. If the market-to-book ratio is 2.71 times, what is the company's WACC?

  • Double-Major Co. has a cost of equity of 11.7 percent and an aftertax cost of debt...

    Double-Major Co. has a cost of equity of 11.7 percent and an aftertax cost of debt of 4.47 percent. The company's balance sheet lists long- term debt of $345,000 and equity of $605,000. The company's bonds sell for 104.3 percent of par and market-to-book ratio is 2.83 times. If the company's tax rate is 40 percent, what is the WACC? Multiple Choice Ο 10.13% Ο 9.07% Ο 10.44% Ο 11.10% Ο 9.60%

  • Skolits Corp. has a cost of equity of 11.3 percent and an aftertax cost of debt...

    Skolits Corp. has a cost of equity of 11.3 percent and an aftertax cost of debt of 4.59 percent. The company's balance sheet lists long-term debt of $365,000 and equity of $625,000. The company's bonds sell for 105.1 percent of par and market-to-book ratio is 2.95 times. If the company's tax rate is 39 percent, what is the WACC? Multiple Choice 8.83% 10.78% 10.14% 9.84% 9.33%

  • The Two Dollar Store has a cost of equity of 10.8 percent, the YTM on the...

    The Two Dollar Store has a cost of equity of 10.8 percent, the YTM on the company's bonds is 6.1 percent, and the tax rate is 35 percent. If the company's debt–equity ratio is .55, what is the weighted average cost of capital?

  • ake It All Away has a cost of equity of 10.57 percent, a pretax cost of...

    ake It All Away has a cost of equity of 10.57 percent, a pretax cost of debt of 5.29 percent, and a tax rate of 39 percent. The company's capital structure consists of 69 percent debt on a book value basis, but debt is 29 percent of the company's value on a market value basis. What is the company's WACC? Multiple Choice 9.64% 9.04% 8.44% 11.96% 7.30%

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT