Due to mismanagement, Pakistan Steel Mills is currently over levered with a debt to capital ratio of 80% and a pre-tax cost of debt of 8%. Management of Pakistan Steel Mills is considering a restructuring that will reduce the company's debt to capital ratio to 40% and its pre-tax cost of debt to 6%.
Current:
Debt/(Debt+Equity) = 80%
Cost of Debt (pre-tax) = 8%
Cost of Equity = 24.10%

Recapitalised:
Debt/(Debt+Equity) = 40%
Cost of Debt (pre-tax) = 6%
Cost of Equity = ?

If the marginal tax rate is 25%, the risk-free rate is 2.5%, and the equity risk premium is 6%, estimate the cost of capital after the restructuring.

Answers

Answer 1

The estimated cost of capital after the restructuring is 10.82%.

Using the MM Proposition II with taxes, we need to first calculate the Cost of unlevered equity;

Cost of unlevered equity = (Cost of levered equity+cost of debt*D/E*(1-tax rate))/(1+D/E*(1-tax rate))

Cost of unlevered equity = (24.10% + 8%*80%/20%*(1-25%)) / (1+80%/20%*(1-25%))

Cost of unlevered equity = 12.03

Cost of levered equity = Cost of unlevered equity + (Cost of unlevered equity-Cost of debt)*D/E*(1-tax rate)

Cost of levered equity = 12.03% + (12.0250%-6%)*40%/60%*(1-25%)

Cost of levered equity = 15.04%

Cost of capital (WACC) =40%*6%*(1-25%)+60%*15.0375%

Cost of capital (WACC) = 0.018 + 0.090225

Cost of capital (WACC) = 0.108225

Cost of capital (WACC) = 10.82%

In conclusion, the estimated cost of capital after the restructuring is 10.82%.

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Related Questions

what is 450x12 PLZ HELP ME I NEED HELP

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Answer:

5400

quick and easy  thank u

a new machine with a purchase price of $109,000, with transportation costs of $12,000, installation costs of $5,000, and special acquisition fees of $6,000, would have a cost basis of:

Answers

Based on the information given the cost basis is $132,000.

Using this formula

Cost basis=Purchases price+ Transportation costs + Installation costs +  Special acquisition fees

Where:

Purchases price=$109,000

Transportation costs=$12,000

Installation costs=$5,000

Special acquisition fees=$6,000

Let plug in the formula

Cost basis=$109,000+$12,000+$5,000+$6,000

Cost basis=$132,000

Inconclusion the cost basis is $132,000.

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Dr. Montgomery recently graduated from medical school and his wife bought him an engraved stethoscope. The stethoscope cost $160. 0. The sales tax in his city is 8%. What is the total cost of the stethoscope in dollars and cents including sales tax?.

Answers

Answer: $172.8

That's correct :)

When countries specialize in the production of goods they have the comparative advantage in, both ___________ and ___________________ will increase

Answers

Based on the question above, demand and supply will increase.

Demanddemand is the quantity of a good that consumers are willing and able to buy at various prices during a given period of time.

Supply supply is the amount of a resource that firms, manufacturers, labourers, providers of financial assets, or other economic agents are willing and able to provide to the marketplace or to an individual.

Therefore, the correct answers are demand and supply.

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The ______ is a roadmap that displays how all the specific activities fit together to accomplish the project work scope.

Answers

Based on project management, the Network Diagram is a roadmap that displays how all the specific activities fit together to accomplish the project work scope.

Network Diagram in Project Management

Generally, Network Diagram is a tool used by project managers to visualize the whole concept before the work is carried out. It is also used throughout the project to determine how the work is to be done, including the duration and methods, sequence, and dependency.

Benefits of a Project network diagramVisual representation of work or project in progress.Ascertaining project workflows.Tracking dependencies and potential stoppages.

Hence, in this case, it is concluded that the correct answer is Network Diagram.

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how does credit utilization affect your credit score?

Answers

A high utilization rate is a sign that you may be experiencing financial difficulty and is a strong indicator of lending risk. As a result, high utilization hurts credit scores and can cause lenders to be reluctant to extend additional credit

What do you think Madison needs to include in the fire prevention training plan?


Answers

"Fire size", "Atmosphere in the vicinity of the fire", "Fire fighter's evacuation path" are the correct answers.

Which leadership skill do you feel is most important for a small business to succeed for a
long time? Explain your answer using examples. It's depends on the business that they are doing because they all have strengths and weakness.

Answers

In my opinion, reliability and consistency are two of the most important leadership skills for a small business to succeed for a long time. With these two characteristics a small business can build a returning customer base as well as a good rating on review websites. For example, many local barbershops provide consistent quality haircuts which builds reliability and in turn demand and returning customers.

Oil refining is an example of:

Construction Production
Extractive Production
Domestic Production
Traditional Production

Answers

Answer:

Explanation: step by step

Gareth bought a home for $135,000. The home gained 2. 2% in value every year for eight years until Gareth sold it. How much profit did Gareth make, to the nearest hundred dollars? a. $60,700 b. $25,700 c. $23,800 d. $29,100.

Answers

The amount of profit made by Gareth upon the sale of the home is $26,700.

Computation:

Given,

[tex]P[/tex] = Principal Amount of $135,000

[tex]i[/tex] = interest rate of 2.20%

[tex]n[/tex] =number of years are 8 years

First, the value of the home at the end of the 8th year will be computed by using the formula of future value.

[tex]\begin{aligned}\text{Future Value}&=P\times(1+i)^n\\&=\$135,000\times(1+0.022)^8\\&=\$160,672.27\end{aligned}[/tex]

Now, the profit will be computed by taking the difference of the future value of the home and the purchase price or the principal amount of the home.

[tex]\begin{aligned}\text{Profit}&=\text{Future Value\;-\;Principal Amount}\\&=\$160,672.27-\$135,000\\&=\$25,672.27\;\text{or}\;\$25,700\end{aligned}[/tex]

Therefore, at the time of sale of the home, the amount of profit gained by Gareth is $25,700.

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Answer:

b. $25,700

Explanation:

got it right

perfectly competitive market in long run equilibrium. if demand decreases, we can be certain that price will

Answers

Answer:

fall in the short run. all, some, or no firms will shut down, and some of them will exit the industry. price will then rise to reach the new long-run

Suppose In a Snap Ltd. Just issued a dividend of $1. 25 per share on its common stock. The company paid dividends of $. 85, $. 90, $1. 04, and $1. 10 per share in the last four years. If the stock currently sells for $45, what is your best estimate of the company’s cost of equity capital using the arithmetic average growth rate in dividends? What if you use the geometric average growth rate?.

Answers

I have attached the answer

You plan on making a $235. 15 monthly deposit into an account that pays 3. 2% interest, compounded monthly, for 20 years. At the end of this period, you plan on withdrawing regular monthly payments. Determine the amount that you can withdraw each month for 10 years, if you plan on not having anything in the account at the end of the 10 year period and no future deposits are made to the account. A. $769. 27 b. $767. 23 c. $78,910. 41 d. $79,120. 84.

Answers

Answer:

10

Explanation:

The amount of money that can be withdrawn each month for 10 years is equal to: A. $769. 27.

Given the following data:

Time = 20 yearsMonthly payment = $235.15Interest rate = 3.2%

To determine the amount of money that can be withdrawn each month for 10 years:

First of all, we would convert the compounded interest rate into an effective monthly interest rate as follows:

[tex]r = \frac{0.032}{12} = 0.00267[/tex]

Next, we would calculate the future value for these annuities by using this formula:

[tex]A = \frac{P[(1+r)^{12t} - 1]}{r}[/tex]

Where:

A is the future value.P is the monthly payment or principal.r is the effective monthly interest rate.

Substituting the given parameters into the formula, we have;

[tex]A = \frac{235.15[(1+0.00267)^{12 \times 20}\; - \;1]}{0.00267}\\\\A = \frac{235.15[(1.00267)^{240}\; - \;1]}{0.00267}\\\\A = \frac{235.15[1.8964\; - \;1]}{0.00267}\\\\A = \frac{235.15[0.8964]}{0.00267}\\\\A = \frac{210.789}{0.00267}[/tex]

A = $78,947.19

Now, we can the amount of money that can be withdrawn each month for 10 years by using this formula:

[tex]A = \frac{P[(1+r)^{12t} - 1]}{r(1+r)^{12t}}[/tex]

Making P the subject of formula, we have:

[tex]P = \frac{A[r(1+r)^{12t}]}{(1+r)^{12t} - 1}[/tex]

Substituting the given parameters into the formula, we have;

[tex]P = \frac{78,947.19[0.00267(1+0.00267)^{12 \times 10}]}{(1+0.00267)^{12 \times 10} - 1}\\\\P = \frac{78,947.19[0.00267(1.3771)]}{1.3771 - 1}\\\\P = \frac{290.278}{0.3771 }[/tex]

P = $769.27

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Professional real estate trade associations and state real estate Commissions help guide real estate licensees in the practice of their profession by creating A) a code of ethics. B) a special category of licensing for those who work free of charge for in-need clients. C) a business model for real estate professionals. D) a list of real estate licensees who promise to act ethically.

Answers

The real estate associations and Commissions help to guide the real estate licensees by creating the code of ethics.

Code of ethics refers to those set of principles which are required to guide professionals in the conduct of their business with integrity.

The real estate associations and Commissions help to guide the real estate licensees by creating the code of ethics.

The Realtors' Code of Ethics is divided into three major sections which includes:

Duties to Clients and CustomersDuties to the PublicDuties to Realtors.

Therefore, the Option A is correct.

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which economic advantage does eastern europe enjoy because of its location next to russia?

Answers

Access to Russia’s economic Markets

arts stream padhne se aacha to python ya java ki book pdf download kar lo usse padh lo

Answers

Answer:

Hahahahahahahha is it that much difficult

A contractor can spend at most $350 a day on operating costs and payroll. It costs $75 each day to operate the forklift and $55 a day for each crew member. Write an inequality to represent the contractor's budget for the day. 75 55x ≥ 350 75 55x ≤ 350 75x 55 ≥ 350 75x 55 ≤ 350.

Answers

An inequality to represent the contractor's budget for the day is [tex]75 + 55x \leq 350[/tex].

Let the number of crew member be x.Let the forklift operating cost be F.Let the total cost be T.Let the payroll be P.

Given the following data:

Total expense [tex]\leq[/tex] $350

Forklift operating cost = $75

Payroll for each crew member = $55

To write an inequality to represent the contractor's budget for the day:

The contractor's budget for the day on operating costs and payroll must not exceed $350. Thus, the mathematical expression (inequality) for the contractor's budget in a day is represented as follows:

[tex]F+Px \leq T[/tex]

Substituting the given parameters into the formula, we have;

[tex]75 + 55x \leq 350[/tex]

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A savings account is a good choice for:
A. a high return on your investment.
B. retirement planning.
C. when you need easy access to your funds. .
о
D. basic savings and as an emergency fund.

Answers

Answer:

B. Basic savings and as an emergency fund

Explanation:

In the early days of the game industry, nearly all games were developed by designers, for designers. More specifically, what age-range/gender were the designers, and for what age-range/gender were they designing the games for?

Answers

Based on historical perspective, the age range of the early game designers is between 40 to 60years old. Also, the gender for which the games were being designed is male.

History of Game Designs.

The history of game designs can be traced to William Higinbotham, a Physicist who created the first video game in 1958 at the age of 48 years.

William Higinbotham created the first video game during the Brookhaven annual visitors day to lighten the exhibition show.

The video game he created was tennis, known as "Tennis for Two," and the men in attendance played it.

Hence, in this case, it is concluded that the game designers were men, and they are in the age range of 40 to 60 years.

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What kinds of products
and property do cyber-
protection laws cover?

Answers

Answer:

Act of threatening to share information about a person to the public, their friends or family, unless a demand is met or money is paid

Explanation:

Mark is looking for professional financial assistance. Mark has never invested before and is not quite sure where to start. He knows that he wants to build up investments for future projects such as retirement, but he is not sure how to navigate investment in light of his existing debts. Recommend an appropriate financial professional for Mark. A. Full-service broker b. Discount broker c. Accountant d. Financial planner Please select the best answer from the choices provided A B C D.

Answers

The recommended appropriate financial professional for Mark. A is: d. Financial planner.

Financial planner is a financial professional or financial adviser who is in the right position to give financial advice or to provide financial guidance to you.

A financial planner can help you plan your finances so as to avoid running into debt which will in turn will enables your to achieve your financial aims and goals.

It is the duty of a  financial planner  to give you some insight on how you can grow your wealth and how to manage your wealth.

Based on the given scenario Mark should consult a financial planner who will help him plan his finances as well as how to build his investment for future project.

Inconclusion the recommended appropriate financial professional for Mark. A is: d. Financial planner.

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Answer:

It's D

Explanation:

an example of contractionary fiscal policy would be:

Answers

Answer:

increasing taxes and lowering government spending.

Explanation:

When the government lowers taxes, consumers have more disposable income.

the most recent large-scale use of contractionary fiscal policy came during President Bill Clinton's time in office (1993–2001), when he increased taxes on high-income taxpayers and decreased government spending on both defense and welfare

at land rover, voluntary discussion groups of 4 to 12 employees met weekly to identify cost savings, improve product quality, and discuss work-related problems. although the teams were later phased out, their work was, in part, responsible for almost doubling production at land rover from 1993 to 1996.

Answers

Explanation:

you would have 5000

i hope i help you

Who is likely to be in favor of a country that would be a net exporter moving from autarky to free trade

Answers

Explanation:

sorry don't know think you should ask the question

What tool in Word can you use to search your entire document for spelling and grammar errors?

Grammar Fixer
Spelling Dictionary
Spelling Help
Spelling and Grammar Check

Answers

Answer:

Spelling and Grammar check.

Explanation:

When the quantity supplied is greater than the quantity demanded:

Answers

Answer:

... you have lots of extra products lying around and often prices will drop.

How do businesses maintain a formal record of financial transactions?
a) Publish an income statement b) Publish a balance sheet
c) Maintain a general journal
d) Utilize the Matching Principle

Answers

Businesses maintain a formal record of financial transactions through publication of income statement and balance sheet.

A formal record of financial transaction entails publication of periodic financial statement to allows users them to understand the financial position of the company.

The process of Bookkeeping with helps to record all financial transactions helps to publish an income statement and balance sheet.

The income statement and balance sheet are the two main financial record which depict the accurate position of the firms position.

Therefore, the Option A and B is correct.

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Lopez Corporation, a manufacturer of household paints, is preparing annual financial statements at December 31, 2007. Because of a recently proven health hazard in one of its paints, the government has clearly indicated its intention of having Lopez recall all cans of this paint sold in the last six months. The management of Lopez estimates that this recall would cost $800,000.

Requried:
What accounting recognition, if any, should be accorded this situation?

Answers

The accounting recognition to be accorded in this situation is operating expense of $800,000 and liability of $800,000.

Basically, an accounting recognition refers to the act of recording a business transaction in the firm's accounting records.

Because the management of Lopez estimates that this recall of all cans of paint sold in the last six months would cost $800,000, then, the entry will be as follows

In conclusion, the accounting recognition to be accorded in this situation is operating expense of $800,000 and liability of $800,000

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The United States and Canada have the production possibilities curves shown above. It is determined that the United States has the comparative advantage in peanuts. Will both nations gain from trade if the terms of trade that are offered are 1 Peanut= 2 Corn? Why or why not? Show your work.

Answers

In an exchange term in which 1 peanut is offered in exchange for 2 corn, the United States benefits because it has a greater capacity to exchange peanuts, so it can obtain more corn.

The graph shows the production capacity of the United States and Canada to produce corn and peanuts. In the case of the United States, it has the capacity to produce 60 of each product while Canada only has the capacity to produce 60 of corn and 20 of peanuts.

According to the above, if an exchange is established between the two countries in which 1 peanut is exchanged for 2 corn, the United States would have an advantage since they have more peanuts to offer and the amount of corn they would receive at change would be greater (maximum 160 corn)

On the other hand, Canada only has the capacity to change 20 peanuts, which is equivalent to 40 corn. So the United States is at an advantage because it has more peanuts to offer and would have a greater reception of corn.

Note: This question is incomplete because the graph is missing. Here is the graph.

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One difficulty in using voluntary transactions to internalize externalities is that: _____________

a. the government usually will not enforce contracts of this type.
b. people are motivated by​ self-interest and are often unwilling to engage in a transaction that might make another person better off.
c. transaction costs of coming to an agreement can be very large when numerous people are involved.
d. people usually​ don't understand what the real opportunity costs are that they face.

Answers

Answer:

jesus

Explanation:

lol

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