Question 1

What is Ningbo Shipping's WACC if it's after tax cost of debt is 3.5%, it's cost of retained earnings is 14%, and the firm's market value of debt is $40 million while the market value of its equity is $60 million?

Accepted Answer

The WACC is calculated as (E/V * Re) + (D/V * Rd * (1-T)), where E is equity, V is total value (equity + debt), Re is cost of equity, D is debt, and Rd is cost of debt. Here, E = $60M, D = $40M, Re = 14%, Rd = 3.5%, and V = $100M. WACC = ($60M/$100M * 14%) + ($40M/$100M * 3.5%) = 9.8%.

Question 2

If a firm pays out 3020% of its earnings as dividends and has averaged a 20 percent return on equity, how quickly can the firm grow while maintaining a constant debt to equity mix?

Accepted Answer

The sustainable growth rate (SGR) is calculated as:

SGR = Retention rate × Return on equity

Where the retention rate is equal to 1 − dividend payout ratio.

In this case, the dividend payout ratio is 3020% which is not possible, as it exceeds 100%. Therefore, assuming a typo and changing it to 30%, the retention rate would be:

Retention rate = 1 − payout ratio = 1 − 0.30 = 0.70

And the SGR would be:

SGR = 0.70 × 0.20 = 0.14 or 14%

Therefore, the firm can grow at a maximum rate of 14% while maintaining a constant debt to equity mix. Among the provided answer choices, the closest one to 14% is option C, 16.3%.

Question 3

If a firm pays out 30% of its earnings as dividends and has averaged a 20 percent return on assets, how quickly can the firm grow without needing to secure outside funding sources?

Accepted Answer

The answer of If a firm pays out 30% of...

Question 4

All of the following statements are correct except:

Accepted Answer

The answer of All of the following statements are correct...

Question 5

79100.Ningbo Shipping has determined it can issue preferred stock at $115 per share par value.The stock will pay a $12 annual dividend.The cost of issuing and selling the stock is $3 per share.The cost of the preferred stock is

Accepted Answer

The cost of preferred stock is calculated as the annual dividend divided by the net proceeds per share. The net proceeds per share is the issue price minus the cost of issuing and selling the stock: $115 - $3 = $112. Therefore, the cost of preferred stock is $12 / $112 = 0.1071 or 10.7%.

Question 6

If a firm pays out 30% of its earnings as dividends and has averaged a 20 percent return on equity, how quickly can the firm grow while maintaining a constant debt to equity mix?

Accepted Answer

The answer of If a firm pays out 30% of...

Question 7

Ningbo Shipping, which has an average tax rate of 40 percent, would like to estimate the after-tax cost of debt for a 15-year, 12 percent, $1,000 par value bond, selling at $950.Based on this information, the after-tax cost of debt is:

Accepted Answer

The after-tax cost of debt is calculated using the formula: After-tax cost of debt = Yield to Maturity (YTM) * (1 - Tax Rate). First, calculate the YTM for the bond, which is approximately 12.8%. Then, apply the tax rate: 12.8% * (1 - 0.40) = 7.68%, which rounds to 7.7%.

Question 8

Ningbo Shipping has issued preferred stock at its $125 per share par value.The stock will pay a $15 annual dividend.The cost of issuing and selling the stock was $4 per share.The cost of Ningbo Shipping preferred stock is:

Accepted Answer

The cost of preferred stock can be calculated using the formula:

Cost of preferred stock = Annual dividend / Net issuing price

The net issuing price is calculated as the par value of the stock minus the cost of issuing and selling the stock:

Net issuing price = $125 - $4 = $121

Therefore, the cost of preferred stock is:

Cost of preferred stock = $15 / $121 = 0.1239 or 12.4%

So, the correct answer is option C.

Question 9

What is Ningbo Shipping's WACC if it's after tax cost of debt is 3.5%, it's cost of retained earnings is 14%, and the firm's market value of debt is $40 million while the market value of its equity is $60 million? Too many clones

Accepted Answer

The answer of What is Ningbo Shipping's WACC if it's...

Question 10

If a firm pays out 30% of its earnings as dividends and has averaged a 20 percent return on assets, how quickly can the firm grow without needing to secure outside funding sources?

Accepted Answer

The sustainable growth rate formula is:
Sustainable growth rate = (retention rate × return on assets)
The retention rate is (1 - dividend payout ratio) which is (1-0.30) = 0.70
Return on assets is 20%
Sustainable growth rate = (0.70 × 20%) = 14%
Therefore, the firm can grow at a maximum rate of 14% without needing to secure outside funding sources. Option C is closest to this answer.

Question 11

Ningbo Shipping has common stock with a market price of $25 per share and an expected dividend of $2 per share at the end of the coming year.The growth rate in dividends has been 5 percent and this growth is expected to continue indefinitely.Based on this information, the cost of the firm's common stock equity is

Accepted Answer

The answer of Ningbo Shipping has common stock with a...

Quiz 18: Capital Structure and the Cost of Capital

What is Ningbo Shipping's WACC if it's after tax cost of debt is 3.5%, it's cost of retained earnings is 14%, and the firm's market value of debt is $40 million while the market value of its equity is $60 million?

If a firm pays out 3020% of its earnings as dividends and has averaged a 20 percent return on equity, how quickly can the firm grow while maintaining a constant debt to equity mix?

If a firm pays out 30% of its earnings as dividends and has averaged a 20 percent return on assets, how quickly can the firm grow without needing to secure outside funding sources?

All of the following statements are correct except:

79100.Ningbo Shipping has determined it can issue preferred stock at $115 per share par value.The stock will pay a $12 annual dividend.The cost of issuing and selling the stock is $3 per share.The cost of the preferred stock is

If a firm pays out 30% of its earnings as dividends and has averaged a 20 percent return on equity, how quickly can the firm grow while maintaining a constant debt to equity mix?

Ningbo Shipping, which has an average tax rate of 40 percent, would like to estimate the after-tax cost of debt for a 15-year, 12 percent, $1,000 par value bond, selling at $950.Based on this information, the after-tax cost of debt is:

Ningbo Shipping has issued preferred stock at its $125 per share par value.The stock will pay a $15 annual dividend.The cost of issuing and selling the stock was $4 per share.The cost of Ningbo Shipping preferred stock is:

What is Ningbo Shipping's WACC if it's after tax cost of debt is 3.5%, it's cost of retained earnings is 14%, and the firm's market value of debt is $40 million while the market value of its equity is $60 million? Too many clones

If a firm pays out 30% of its earnings as dividends and has averaged a 20 percent return on assets, how quickly can the firm grow without needing to secure outside funding sources?