FIN 504 Topic 5 Problem Set 5 Risk and Return and Cost of Capital Problems

FIN 504 Topic 5 Problem Set 5 Risk and Return and Cost of Capital Problems for $19 OnlyFIN 504 Topic 5 Problem Set 5

Details:

Complete the following problems from Chapters 8 and 9 in Principles of Managerial Finance:

Risk and Return: P8-1; P8-4; P8-7; P8-14; P8-20; P8-23; P8-24

Cost of Capital: P9-1; P9-2; P9-9; P9-14; P9-17

Use the Chapters 8-9 Excel resource (if needed) to complete the problem-set assignment in this topic.

Please show all work for each problem.

You are not required to submit this assignment to Turnitin.

FIN504.R.GitmanCh08.09_Student.xlsx

Price of Answer: Just US$19 only

Buy Now

Need Assistance…??  email us at [email protected].

If you need any type of help regarding Homework, Assignments, Projects, Case study, Essay writing or anything else then just email us at [email protected]solvemyquestion.com.  We will get back to you ASAP. Do not forget to maintain the time frame you need your work to be done.

Cost of Capital for Swan Motors

Cost of Capital for Swan Motors for $8 Only (Instant Download)Cost of Capital for Swan Motors

Sample Answer Given Below

You have recently been hired by Swan Motors, Inc. (SMI), in its relatively new treasury management department. SMI was founded 8 years ago by Joe Swan. Joe found a method to manufacture a cheaper battery with much greater energy density than was previously possible, giving a car powered by the battery a range of 700 miles before requiring a charge. The cars manufactured by SMI are midsized and carry a price that allows the company to compete with other mainstream auto manufacturers. The company is privately owned by Joe and his family, and it had sales of $97 million last year.

SMI primarily sells to customers who buy the cars online, although it does have a limited number of company-owned dealerships. Most sales are online. The customer selects any customization and makes a deposit of 20 percent of the purchase price. After the order is taken, the car is made to order, typically within 45 days. SMI’s growth to date has come from its profits. When the company had sufficient capital, it would expand production. Relatively little formal analysis has been used in its capital budgeting process. Joe has just read about capital budgeting techniques and has come to you for help. For starters, the company has never attempted to determine its cost of capital, and Joe would like you to perform the analysis. Because the company is privately owned, it is difficult to determine the cost of equity for the company. Joe wants you to use the pure play approach to estimate the cost of capital for SMI, and he has chosen Tesla Motors as a representative company. The following questions will lead you through the steps to calculate this estimate.

Most publicly traded corporations are required to submit 10Q (quarterly) and 10K (annual) reports to the SEC detailing their financial operations over the previous quarter or year, respectively. These corporate filings are available on the SEC website at www.sec.gov. Go to the SEC website, follow the “Search for Company Filings” link and the “Companies & Other Filers” link, enter “Tesla,” and search for SEC filings made by Tesla. Find the most recent 10Q and 10K and download the forms. Look on the balance sheet to find the book value of debt and the book value of equity. If you look further down the report, you should find a section titled either “Long-Term Debt” or “Long-Term Debt and Interest Rate Risk Management” that will list a breakdown of Tesla’s long-term debt.

To estimate the cost of equity for Tesla, go to finance.yahoo.com and enter the ticker symbol “TSLA.” Follow the various links to find answers to the following questions: What is the most recent stock price listed for Tesla? What is the market value of equity, or market capitalization? How many shares of stock does Tesla have outstanding? What is the beta for Tesla? Now go back to finance.yahoo.com and follow the “Bonds” link. What is the yield on 3-month Treasury bills? Using a 7 percent market risk premium, what is the cost of equity for Tesla using the CAPM?
Go to www.reuters.com and find the list of competitors in the industry. Find the beta for each of these competitors, and then calculate the industry average beta. Using the industry average beta, what is the cost of equity? Does it matter if you use the beta for Tesla or the beta for the industry in this case?

You now need to calculate the cost of debt for Tesla. Go to finra-markets.morningstar.com/BondCenter/Results.jsp, enter Tesla as the company, and find the yield to maturity for each of Tesla’s bonds. What is the weighted average cost of debt for Tesla using the book value weights and the market value weights? Does it make a difference in this case if you use book value weights or market value weights?

You now have all the necessary information to calculate the weighted average cost of capital for Tesla. Calculate the weighted average cost of capital for SMI using book value weights and market value weights assuming SMI has a 35 percent marginal tax rate. Which cost of capital number is more relevant?

You used Tesla as a representative company to estimate the cost of capital for SMI. What are some of the potential problems with this approach in this situation? What improvements might you suggest?

Sample Answer:

Price of Answer: Just $8 only (Instant Download)

Need Assistance…?? email us at[email protected].If you need any type of help regarding Homework, Assignments, Projects, Case study, Essay writing, Exam or anything else then just email us at[email protected]solvemyquestion.com. We will get back to you ASAP.

Weighted Average Cost of Capital (WACC) for Golden Gate construction Associates

Weighted Average Cost of Capital (WACC) for Golden Gate construction Associates

Golden Gate Construction Associates, a real estate developer and building contractor in San Francisco, has two sources of long-term capital: debt

and equity. The cost to Golden Gate of issuing debt is the after-tax cost of the interest payments on the debt, taking into account the fact that the interest payments are tax deductible. The cost of Golden Gate’s equity capital is the investment opportunity rate of Golden Gate’s investors, that is, the rate they could earn on investments of similar risk to that of investing in Golden Gate Construction Associates. The interest rate on Golden Gate’s $90 million of long-term debt is 10 percent, and the company’s tax rate is 40 percent. The cost of Golden Gate’s equity capital is 15 percent. Moreover, the market value (and book value) of Golden Gate’s equity is $135 million. Required: Calculate Golden Gate Construction Associates’ weighted-average cost of capital

Answer available.

Price of Answer: Just US$2.50 onlyBuy Now

Need Assistance…??  email us at [email protected].

If you need any type of help regarding Homework, Assignments, Projects, Case study, Essay writing or any thing else then just email us at [email protected]solvemyquestion.com.  We will get back to you ASAP. Do not forget to maintain the time frame you need you work to be done.

Questions on Cost of Capital, WACC and IPO

Questions on Cost of Capital

Questions on Cost of Capital, WACC and IPO for $3 Only
1. What are the main elements in calculating cost of capital? How would an increase in debt affect the cost of capital? How would you identify the optimal cost of capital for an organization?
2. What is meant by Weighted Average Cost of Capital (WACC)? Why is WACC a more appropriate discount rate when doing capital budgeting? What is the impact on WACC when an organization needs to raise long term capital?
3. What is an Initial Public Offering (IPO)? How does an IPO allow an organization to grow financially? When is a merger or an acquisition, rather than an IPO, a more appropriate way to grow?

Each answer should be 150-300 words.

Answer available.

Price of Answer: Just US$3 only

Buy Now

 

Need Assistance…??  email us at [email protected].

If you need any type of help regarding Homework, Assignments, Projects, Case study, Essay writing, Exam or anything else then just email us at [email protected]solvemyquestion.com.  We will get back to you ASAP.

Capital Budgeting/ Cost of Capital

Capital Budgeting/ Cost of Capital in $14

Shell Solar Water Inc. (SSI) is a market leader in the production and distribution of solar water heating systems throughout the OECS.The company is considering establishing a production plant on the island of Grand Cayman to decrease the cost of its operations. SSI had already purchased some land two years ago for $1,500,000 on which it plans to build its new plant which costs $4,000,000 to house its manufacturing business.The legal fee attached to this purchase was $120,000 and the company believes it can recover this cost through the sales of its systems which it expects to be more than what it currently enjoys.The company uses a CCA rate of 8 percent for the amortizing of its plant which can be scrapped for $780,000 at the end of the project life.

WACC Calculation for Filer Manufacturing

WACC Calculation for Filer Manufacturing

Filer manufacturing has 7.5 millions shares of common stock outstanding. The current share price is $49, and the book value per share is $4. Filer also has 2 bond issues outstanding the first bond issue has a face value of $60 millions and a 7% coupon and sells for 93% of par. The second issue has a face value of $50 million and a 6.5% coupon and sells for 96.5 percent of par. The first issue matures in 10 years, the second in 6 years. Suppose the company’s stock has a beta of 1.2. The risk free rate is 5.2%, and the market risk premium is 7%. Assume that the overall cost of debt is the weighted average implied by the 2 outstanding debt issues. Both bonds make semiannual payments. The tax rate is 35%. What is the company’s WACC?

ANSWERS AVAILABLE.

Price of Answer: Just US$ 2.95 only (Instant Download)

Buy Now

Need Assistance…??  email us at [email protected].

If you need any type of help regarding Homework, Assignments, Projects, Case study, Essay writing or anything else then just email us at [email protected]solvemyquestion.com.  We will get back to you ASAP. Do not forget to maintain the time frame you need you work to be done.

Cost of Capital Mini Case: Cascade Water Company

English: Cost-Volume-Profit diagram, decomposi...

Source Book : Corporate Finance: Linking Theory to What Companies Do By John Graham, Scott B. Smart, William L. Megginson

Chapter 9: Cost of Capital and Project Risk

Mini Case

Cascade Water Company (CWC) currently has 30,000,000 shares of common stock out- standing that trade at a price of $42 per share. CWC also has 500,000 bonds outstanding that currently trade at $923.38 each. CWC has no preferred stock outstanding and has an equity beta of 2.639. The risk-free rate is 3.5%, and the market is expected to return 12.52%. The firm’s bonds have a 20-year life, a $1,000 par value, a 10% coupon rate and pay interest semi-annually.

CWC is considering adding to its product mix a “healthy” bottled water geared toward children. The initial outlay for the project is expected to be $3,000,000, which will be depreciated using the straight-line method to a zero salvage value, and sales are expected to be 1,250,000 units per year at a price of $1.25 per unit. Variable costs are estimated to be $0.24 per unit, and fixed costs of the project are estimated at $200,000 per year. The project is expected to have a 3-year life and a terminal value (excluding the operating cash flows in year 3) of $500,000. CWC has a 34% marginal tax rate. For the purposes of this project, working capital effects will be ignored. Bottled water targeted at children is expected to have different risk characteristics from the firm’s current products. Therefore, CWC has decided to use the “pure play” approach to evaluate this project. After researching the market, CWC managed to find two pure-play firms. The specifics for those two firms are: