Question 1

Calculate the after-tax WACC based on the following information:nominal interest rate on debt = 16%; cost of common equity = 30%; equity to value = 60%; debt to value = 40%; and a tax rate = 25%.

Accepted Answer

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Question 2

Estimate a firm's NOPAT based on: Net sales = $2,000,000; EBIT = $600,000; Net income = $20,000; and Effective tax rate = 30%.

Accepted Answer

NOPAT (Net Operating Profit After Taxes) = EBIT x (1- Tax Rate)
Given: 
EBIT = $600,000
Effective tax rate = 30%
Therefore, NOPAT = $600,000 x (1-0.30) = $420,000
Therefore, the best choice is B.

Question 3

Estimate a firm's economic value added (EVA)based on: NOPAT = $400,000; amount of financial capital used = $1,600,000; and WACC = 19%.

Accepted Answer

EVA = NOPAT - (WACC * Capital)
EVA = $400,000 - (0.19 * $1,600,000)
EVA = $400,000 - $304,000
EVA = $96,000

Question 4

Calculate the weighted average cost of capital (WACC)based on the following information:the capital structure weights are 50% debt and 50% equity; the interest rate on debt is 10%; the required return to equity holders is 20%; and the tax rate is 30%.

Accepted Answer

WACC = (weight of debt x cost of debt x (1-tax rate)) + (weight of equity x required return to equity)
WACC = (0.5 x 0.1 x (1-0.3)) + (0.5 x 0.2)
WACC = 0.035 + 0.1
WACC = 0.135 or 13.5%

Question 5

Find a venture's "economic value added" (EVA)based on the following information:EBIT = $200,000; financial capital used = $500,000; WACC = 20%; effective tax rate = 30%.

Accepted Answer

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Question 6

Calculate the weighted average cost of capital (WACC)based on the following information:the equity multiplier is 1.66; the interest rate on debt is 13%; the required return to equity holders is 22%; and the tax rate is 35%.

Accepted Answer

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Question 7

Calculate the after-tax WACC based on the following information:nominal interest rate on debt = 12%; cost of common equity = 25%; common equity = $700,000; interest-bearing debt = $300,000; and a tax rate = 25%.

Accepted Answer

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Question 8

Venture capital holding period returns (all stages)for the 20-year period ending in 2012,had a compound average return of approximately:

Accepted Answer

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Quiz 7: Types and Costs of Financial Capital

Calculate the after-tax WACC based on the following information:nominal interest rate on debt = 16%; cost of common equity = 30%; equity to value = 60%; debt to value = 40%; and a tax rate = 25%.

Estimate a firm's NOPAT based on: Net sales = $2,000,000; EBIT = $600,000; Net income = $20,000; and Effective tax rate = 30%.

Estimate a firm's economic value added (EVA) based on: NOPAT = $400,000; amount of financial capital used = $1,600,000; and WACC = 19%.

Calculate the weighted average cost of capital (WACC) based on the following information:the capital structure weights are 50% debt and 50% equity; the interest rate on debt is 10%; the required return to equity holders is 20%; and the tax rate is 30%.

Find a venture's "economic value added" (EVA) based on the following information:EBIT = $200,000; financial capital used = $500,000; WACC = 20%; effective tax rate = 30%.

Calculate the weighted average cost of capital (WACC) based on the following information:the equity multiplier is 1.66; the interest rate on debt is 13%; the required return to equity holders is 22%; and the tax rate is 35%.

Calculate the after-tax WACC based on the following information:nominal interest rate on debt = 12%; cost of common equity = 25%; common equity = $700,000; interest-bearing debt = $300,000; and a tax rate = 25%.

Venture capital holding period returns (all stages) for the 20-year period ending in 2012,had a compound average return of approximately: