You have been provided the information on the cost of debt and cost of capital that a company will have at a 10% debt ratio, and asked to estimate the cost of debt at 20%. The long term treasury bond rate is 5%. Assume the market risk premium is 5.8%. (10 points) Answer format is 12.3 for 12.30% and 17.55 for 17.55%.
Debt Ratio / 10% / 20%
$ Debt / $ 1,500
EBIT / $ 1,000
Interest Expenses / $120
Interest Coverage Ratio / 6.64
Bond Rating / A
Interest Rate / 5%
Tax Rate / 40%
Beta / 1.80
The interest coverage ratios, ratings and spreads are as follows:
Coverage Ratio / Rating / Spread over Treasury
> 10 / AAA / 0.30%
7 -10 / AA / 1.00%
5 - 7 / A / 1.50%
3 - 5 / BBB / 2.00%
2- 3 / BB / 2.50%
1.25 - 2 / B / 3.00%
0.75 - 1.25 / CCC / 5.00%
0.50 - 0.75 / CC / 6.50%
0.25 - 0.50 / C / 8.00%
< 0.25 / D / 10.00%
Student Response / Value / Correct Answer
Answer: / 14.5 / 0% / 6.50
Score: / 0/10
2.
You have been provided the information on the cost of debt and cost of capital that a company will have at a 10% debt ratio, and asked to estimate the after tax cost of debt at 18%. The long term treasury bond rate is 6%. Assume the market risk premium is 5.9%. (10 points) Answer format is 12.3 for 12.30% and 17.55 for 17.55%.
Debt Ratio / 10% / 18%
$ Debt / $ 1,500
EBIT / $ 1,000
Interest Expenses / $120
Interest Coverage Ratio / 5.00
Bond Rating / A
Interest Rate / 7%
Tax Rate / 40%
Beta / 1.71
The interest coverage ratios, ratings and spreads are as follows:
Coverage Ratio / Rating / Spread over Treasury
> 10 / AAA / 0.30%
7 -10 / AA / 1.00%
5 - 7 / A / 1.50%
3 - 5 / BBB / 2.00%
2- 3 / BB / 2.50%
1.25 - 2 / B / 3.00%
0.75 - 1.25 / CCC / 5.00%
0.50 - 0.75 / CC / 6.50%
0.25 - 0.50 / C / 8.00%
< 0.25 / D / 10.00%
Student Response / Value / Correct Answer
Answer: / 11.75 / 0% / 4.50
Score: / 0/10
3.
You have been provided the information on the cost of debt and cost of capital that a company will have at a 10% debt ratio, and asked to estimate the weighed after tax cost of debt at 19%. The long term treasury bond rate is 6%. Assume the market risk premium is 5.1%. (10 points) Answer format is 12.3 for 12.30% and 17.55 for 17.55%.
Debt Ratio / 10% / 19%
$ Debt / $ 1,500
EBIT / $ 1,000
Interest Expenses / $120
Interest Coverage Ratio / 5.96
Bond Rating / A
Interest Rate / 6%
Tax Rate / 40%
Beta / 1.38
The interest coverage ratios, ratings and spreads are as follows:
Coverage Ratio / Rating / Spread over Treasury
> 10 / AAA / 0.30%
7 -10 / AA / 1.00%
5 - 7 / A / 1.50%
3 - 5 / BBB / 2.00%
2- 3 / BB / 2.50%
1.25 - 2 / B / 3.00%
0.75 - 1.25 / CCC / 5.00%
0.50 - 0.75 / CC / 6.50%
0.25 - 0.50 / C / 8.00%
< 0.25 / D / 10.00%
Student Response / Value / Correct Answer
Answer: / 12.4 / 0% / 0.85
4.
You have been provided the information on the cost of debt and cost of capital that a company will have at a 10% debt ratio, and asked to estimate the UNLEVERED BETA. The long term treasury bond rate is 6%. Assume t
Debt Ratio / 10% / 24%
$ Debt / $ 1,500
EBIT / $ 1,000
Interest Expenses / $120
Interest Coverage Ratio / 5.13
Bond Rating / A
Interest Rate / 5%
Tax Rate / 40%
Beta / 1.42
The interest coverage ratios, ratings and spreads are as follows:
Coverage Ratio / Rating / Spread over Treasury
> 10 / AAA / 0.30%
7 -10 / AA / 1.00%
5 - 7 / A / 1.50%
3 - 5 / BBB / 2.00%
2- 3 / BB / 2.50%
1.25 - 2 / B / 3.00%
0.75 - 1.25 / CCC / 5.00%
0.50 - 0.75 / CC / 6.50%
0.25 - 0.50 / C / 8.00%
< 0.25 / D / 10.00%
Student Response / Value / Correct Answer
Answer: / 1.42 / 0% / 1.33
Score: / 0/10
5.
You have been provided the information on the cost of debt and cost of capital that a company will have at a 10% debt ratio, and asked to estimate the BETA at 20%. The long term treasury bond rate is 5%. Assume the
Debt Ratio / 10% / 20%
$ Debt / $ 1,500
EBIT / $ 1,000
Interest Expenses / $120
Interest Coverage Ratio / 5.52
Bond Rating / A
Interest Rate / 7%
Tax Rate / 40%
Beta / 1.01
The interest coverage ratios, ratings and spreads are as follows:
Coverage Ratio / Rating / Spread over Treasury
> 10 / AAA / 0.30%
7 -10 / AA / 1.00%
5 - 7 / A / 1.50%
3 - 5 / BBB / 2.00%
2- 3 / BB / 2.50%
1.25 - 2 / B / 3.00%
0.75 - 1.25 / CCC / 5.00%
0.50 - 0.75 / CC / 6.50%
0.25 - 0.50 / C / 8.00%
< 0.25 / D / 10.00%
Student Response / Value / Correct Answer
Answer: / 1.212 / 0% / 1.09
Score: / 0/10
6.
You have been provided the information on the cost of debt and cost of capital that a company will have at a 10% debt ratio, and asked to estimate the cost of equity at 18%. The long term treasury bond rate is 6%.
Debt Ratio / 10% / 18%
$ Debt / $ 1,500
EBIT / $ 1,000
Interest Expenses / $120
Interest Coverage Ratio / 6.43
Bond Rating / A
Interest Rate / 5%
Tax Rate / 40%
Beta / 1.43
The interest coverage ratios, ratings and spreads are as follows:
Coverage Ratio / Rating / Spread over Treasury
> 10 / AAA / 0.30%
7 -10 / AA / 1.00%
5 - 7 / A / 1.50%
3 - 5 / BBB / 2.00%
2- 3 / BB / 2.50%
1.25 - 2 / B / 3.00%
0.75 - 1.25 / CCC / 5.00%
0.50 - 0.75 / CC / 6.50%
0.25 - 0.50 / C / 8.00%
< 0.25 / D / 10.00%
Student Response / Value / Correct Answer
Answer: / 10 / 0% / 15.41
7.
You have been provided the information on the cost of debt and cost of capital that a company will have at a 10% debt ratio, and asked to estimate the weighted cost of equity at 18%. The long term treasury bond rate is 7%. Assume the market risk premium is 5.1%. (10 points) Answer format is 12.3 for 12.30% and 17.55 for 17.55%.
Debt Ratio / 10% / 18%
$ Debt / $ 1,500
EBIT / $ 1,000
Interest Expenses / $120
Interest Coverage Ratio / 5.33
Bond Rating / A
Interest Rate / 6%
Tax Rate / 40%
Beta / 1.49
The interest coverage ratios, ratings and spreads are as follows:
Coverage Ratio / Rating / Spread over Treasury
> 10 / AAA / 0.30%
7 -10 / AA / 1.00%
5 - 7 / A / 1.50%
3 - 5 / BBB / 2.00%
2- 3 / BB / 2.50%
1.25 - 2 / B / 3.00%
0.75 - 1.25 / CCC / 5.00%
0.50 - 0.75 / CC / 6.50%
0.25 - 0.50 / C / 8.00%
< 0.25 / D / 10.00%
Answer: / 10.9 / 0% / 12.35
8.
You have been provided the information on the cost of debt and cost of capital that a company will have at a 10% debt ratio, and asked to estimate the weighted average cost of capital at 18%. The long term treasury bond rate is 6%. Assume the market risk premium is 6.4%. (30 points) Answer format is 12.3 for 12.30% and 17.55 for 17.55%.
Debt Ratio / 10% / 18%
$ Debt / $ 1,500
EBIT / $ 1,000
Interest Expenses / $120
Interest Coverage Ratio / 6.20
Bond Rating / A
Interest Rate / 6%
Tax Rate / 40%
Beta / 1.81
The interest coverage ratios, ratings and spreads are as follows:
Coverage Ratio / Rating / Spread over Treasury
> 10 / AAA / 0.30%
7 -10 / AA / 1.00%
5 - 7 / A / 1.50%
3 - 5 / BBB / 2.00%
2- 3 / BB / 2.50%
1.25 - 2 / B / 3.00%
0.75 - 1.25 / CCC / 5.00%
0.50 - 0.75 / CC / 6.50%
0.25 - 0.50 / C / 8.00%
< 0.25 / D / 10.00%
Student Response / Value / Correct Answer
Answer: / 18.67 / 0% / 15.81
View Attempt 2 of 5
1.
You have been provided the information on the cost of debt and cost of capital that a company will have at a 10% debt ratio, and asked to estimate the cost of debt at 18%. The long term treasury bond rate is 7%. Assume the market risk premium is 6.3%. (10 points) Answer format is 12.3 for 12.30% and 17.55 for 17.55%.
Debt Ratio / 10% / 18%
$ Debt / $ 1,500
EBIT / $ 1,000
Interest Expenses / $120
Interest Coverage Ratio / 6.56
Bond Rating / A
Interest Rate / 6%
Tax Rate / 40%
Beta / 1.55
The interest coverage ratios, ratings and spreads are as follows:
Coverage Ratio / Rating / Spread over Treasury
> 10 / AAA / 0.30%
7 -10 / AA / 1.00%
5 - 7 / A / 1.50%
3 - 5 / BBB / 2.00%
2- 3 / BB / 2.50%
1.25 - 2 / B / 3.00%
0.75 - 1.25 / CCC / 5.00%
0.50 - 0.75 / CC / 6.50%
0.25 - 0.50 / C / 8.00%
< 0.25 / D / 10.00%
Student Response / Value / Correct Answer
Answer: / 5.50 / 0% / 8.50
2.
You have been provided the information on the cost of debt and cost of capital that a company will have at a 10% debt ratio, and asked to estimate the after tax cost of debt at 21%. The long term treasury bond rate is 6%. Assume the market risk premium is 6.8%. (10 points) Answer format is 12.3 for 12.30% and 17.55 for 17.55%.
Debt Ratio / 10% / 21%
$ Debt / $ 1,500
EBIT / $ 1,000
Interest Expenses / $120
Interest Coverage Ratio / 6.56
Bond Rating / A
Interest Rate / 6%
Tax Rate / 40%
Beta / 1.11
The interest coverage ratios, ratings and spreads are as follows:
Coverage Ratio / Rating / Spread over Treasury
> 10 / AAA / 0.30%
7 -10 / AA / 1.00%
5 - 7 / A / 1.50%
3 - 5 / BBB / 2.00%
2- 3 / BB / 2.50%
1.25 - 2 / B / 3.00%
0.75 - 1.25 / CCC / 5.00%
0.50 - 0.75 / CC / 6.50%
0.25 - 0.50 / C / 8.00%
< 0.25 / D / 10.00%
Student Response / Value / Correct Answer
Answer: / 3.5 / 0% / 4.50
Score: / 0/10
3.
You have been provided the information on the cost of debt and cost of capital that a company will have at a 10% debt ratio, and asked to estimate the weighed after tax cost of debt at 18%. The long term treasury bond rate is 6%. Assume the market risk premium is 5.3%. (10 points) Answer format is 12.3 for 12.30% and 17.55 for 17.55%.
Debt Ratio / 10% / 18%
$ Debt / $ 1,500
EBIT / $ 1,000
Interest Expenses / $120
Interest Coverage Ratio / 5.97
Bond Rating / A
Interest Rate / 5%
Tax Rate / 40%
Beta / 1.27
The interest coverage ratios, ratings and spreads are as follows:
Coverage Ratio / Rating / Spread over Treasury
> 10 / AAA / 0.30%
7 -10 / AA / 1.00%
5 - 7 / A / 1.50%
3 - 5 / BBB / 2.00%
2- 3 / BB / 2.50%
1.25 - 2 / B / 3.00%
0.75 - 1.25 / CCC / 5.00%
0.50 - 0.75 / CC / 6.50%
0.25 - 0.50 / C / 8.00%
< 0.25 / D / 10.00%
Student Response / Value / Correct Answer
Answer: / 1 / 0% / 0.81
Score: / 0/10
4.
You have been provided the information on the cost of debt and cost of capital that a company will have at a 10% debt ratio, and asked to estimate the UNLEVERED BETA. The long term treasury bond rate is 6%. Assume t
Debt Ratio / 10% / 20%
$ Debt / $ 1,500
EBIT / $ 1,000
Interest Expenses / $120
Interest Coverage Ratio / 5.50
Bond Rating / A
Interest Rate / 6%
Tax Rate / 40%
Beta / 1.76
The interest coverage ratios, ratings and spreads are as follows:
Coverage Ratio / Rating / Spread over Treasury
> 10 / AAA / 0.30%
7 -10 / AA / 1.00%
5 - 7 / A / 1.50%
3 - 5 / BBB / 2.00%
2- 3 / BB / 2.50%
1.25 - 2 / B / 3.00%
0.75 - 1.25 / CCC / 5.00%
0.50 - 0.75 / CC / 6.50%
0.25 - 0.50 / C / 8.00%
< 0.25 / D / 10.00%
Student Response / Value / Correct Answer
Answer: / 1.25 / 0% / 1.65
Score: / 0/10
5.
You have been provided the information on the cost of debt and cost of capital that a company will have at a 10% debt ratio, and asked to estimate the BETA at 19%. The long term treasury bond rate is 6%. Assume the
Debt Ratio / 10% / 19%
$ Debt / $ 1,500
EBIT / $ 1,000
Interest Expenses / $120
Interest Coverage Ratio / 6.94
Bond Rating / A
Interest Rate / 7%
Tax Rate / 40%
Beta / 1.14
The interest coverage ratios, ratings and spreads are as follows:
Coverage Ratio / Rating / Spread over Treasury
> 10 / AAA / 0.30%
7 -10 / AA / 1.00%
5 - 7 / A / 1.50%
3 - 5 / BBB / 2.00%
2- 3 / BB / 2.50%
1.25 - 2 / B / 3.00%
0.75 - 1.25 / CCC / 5.00%
0.50 - 0.75 / CC / 6.50%
0.25 - 0.50 / C / 8.00%
< 0.25 / D / 10.00%
Student Response / Value / Correct Answer
Answer: / 1.24 / 100% / 1.22
Score: / 10/10
6.
You have been provided the information on the cost of debt and cost of capital that a company will have at a 10% debt ratio, and asked to estimate the cost of equity at 22%. The long term treasury bond rate is 6%.
Debt Ratio / 10% / 22%
$ Debt / $ 1,500
EBIT / $ 1,000
Interest Expenses / $120
Interest Coverage Ratio / 6.27
Bond Rating / A
Interest Rate / 5%
Tax Rate / 40%
Beta / 1.71
The interest coverage ratios, ratings and spreads are as follows:
Coverage Ratio / Rating / Spread over Treasury
> 10 / AAA / 0.30%
7 -10 / AA / 1.00%
5 - 7 / A / 1.50%
3 - 5 / BBB / 2.00%
2- 3 / BB / 2.50%
1.25 - 2 / B / 3.00%
0.75 - 1.25 / CCC / 5.00%
0.50 - 0.75 / CC / 6.50%
0.25 - 0.50 / C / 8.00%
< 0.25 / D / 10.00%
Student Response / Value / Correct Answer
Answer: / 16.22 / 100% / 16.68
Score: / 10/10
7.
You have been provided the information on the cost of debt and cost of capital that a company will have at a 10% debt ratio, and asked to estimate the weighted cost of equity at 18%. The long term treasury bond rate is 5%. Assume the market risk premium is 6.2%. (10 points) Answer format is 12.3 for 12.30% and 17.55 for 17.55%.
Debt Ratio / 10% / 18%
$ Debt / $ 1,500
EBIT / $ 1,000
Interest Expenses / $120
Interest Coverage Ratio / 6.69
Bond Rating / A
Interest Rate / 6%
Tax Rate / 40%
Beta / 1.40
The interest coverage ratios, ratings and spreads are as follows:
Coverage Ratio / Rating / Spread over Treasury
> 10 / AAA / 0.30%
7 -10 / AA / 1.00%
5 - 7 / A / 1.50%
3 - 5 / BBB / 2.00%
2- 3 / BB / 2.50%
1.25 - 2 / B / 3.00%
0.75 - 1.25 / CCC / 5.00%
0.50 - 0.75 / CC / 6.50%
0.25 - 0.50 / C / 8.00%
< 0.25 / D / 10.00%
Student Response / Value / Correct Answer
Answer: / 11.65 / 100% / 11.65
Score: / 10/10
8.
You have been provided the information on the cost of debt and cost of capital that a company will have at a 10% debt ratio, and asked to estimate the weighted average cost of capital at 22%. The long term treasury bond rate is 5%. Assume the market risk premium is 5.0%. (30 points) Answer format is 12.3 for 12.30% and 17.55 for 17.55%.
Debt Ratio / 10% / 22%
$ Debt / $ 1,500
EBIT / $ 1,000
Interest Expenses / $120
Interest Coverage Ratio / 5.44
Bond Rating / A
Interest Rate / 5%
Tax Rate / 40%
Beta / 1.74
The interest coverage ratios, ratings and spreads are as follows:
Coverage Ratio / Rating / Spread over Treasury
> 10 / AAA / 0.30%
7 -10 / AA / 1.00%
5 - 7 / A / 1.50%
3 - 5 / BBB / 2.00%
2- 3 / BB / 2.50%
1.25 - 2 / B / 3.00%
0.75 - 1.25 / CCC / 5.00%
0.50 - 0.75 / CC / 6.50%
0.25 - 0.50 / C / 8.00%
< 0.25 / D / 10.00%
Student Response / Value / Correct Answer
Answer: / 18.76 / 0% / 12.20
Score: / 0/30
View Attempt 3 of 5
Title: / Application 5 Part IIIStarted: / December 2, 2012 7:55 PM
Submitted: / December 2, 2012 8:05 PM
Time spent: / 00:10:06
Total score: / 40/100 = 40%Total score adjusted by 0.0 Maximum possible score: 100
1.
You have been provided the information on the cost of debt and cost of capital that a company will have at a 10% debt ratio, and asked to estimate the cost of debt at 20%. The long term treasury bond rate is 5%. Assume the market risk premium is 5.1%. (10 points) Answer format is 12.3 for 12.30% and 17.55 for 17.55%.
Debt Ratio / 10% / 20%
$ Debt / $ 1,500
EBIT / $ 1,000
Interest Expenses / $120
Interest Coverage Ratio / 5.12
Bond Rating / A
Interest Rate / 6%
Tax Rate / 40%
Beta / 1.73
The interest coverage ratios, ratings and spreads are as follows:
Coverage Ratio / Rating / Spread over Treasury
> 10 / AAA / 0.30%
7 -10 / AA / 1.00%
5 - 7 / A / 1.50%
3 - 5 / BBB / 2.00%
2- 3 / BB / 2.50%
1.25 - 2 / B / 3.00%
0.75 - 1.25 / CCC / 5.00%
0.50 - 0.75 / CC / 6.50%
0.25 - 0.50 / C / 8.00%
< 0.25 / D / 10.00%
Student Response / Value / Correct Answer
Answer: / 7.3 / 0% / 6.50
Score: / 0/10
2.
You have been provided the information on the cost of debt and cost of capital that a company will have at a 10% debt ratio, and asked to estimate the after tax cost of debt at 18%. The long term treasury bond rate is 6%. Assume the market risk premium is 5.9%. (10 points) Answer format is 12.3 for 12.30% and 17.55 for 17.55%.
Debt Ratio / 10% / 18%
$ Debt / $ 1,500
EBIT / $ 1,000
Interest Expenses / $120
Interest Coverage Ratio / 5.00
Bond Rating / A
Interest Rate / 7%
Tax Rate / 40%
Beta / 1.71
The interest coverage ratios, ratings and spreads are as follows:
Coverage Ratio / Rating / Spread over Treasury
> 10 / AAA / 0.30%
7 -10 / AA / 1.00%
5 - 7 / A / 1.50%
3 - 5 / BBB / 2.00%
2- 3 / BB / 2.50%
1.25 - 2 / B / 3.00%
0.75 - 1.25 / CCC / 5.00%
0.50 - 0.75 / CC / 6.50%
0.25 - 0.50 / C / 8.00%
< 0.25 / D / 10.00%
Student Response / Value / Correct Answer
Answer: / 4.5 / 100% / 4.50
Score: / 10/10
3.
You have been provided the information on the cost of debt and cost of capital that a company will have at a 10% debt ratio, and asked to estimate the weighed after tax cost of debt at 19%. The long term treasury bond rate is 6%. Assume the market risk premium is 5.5%. (10 points) Answer format is 12.3 for 12.30% and 17.55 for 17.55%.
Debt Ratio / 10% / 19%
$ Debt / $ 1,500
EBIT / $ 1,000
Interest Expenses / $120
Interest Coverage Ratio / 5.59
Bond Rating / A
Interest Rate / 6%
Tax Rate / 40%
Beta / 1.14
The interest coverage ratios, ratings and spreads are as follows:
Coverage Ratio / Rating / Spread over Treasury
> 10 / AAA / 0.30%
7 -10 / AA / 1.00%
5 - 7 / A / 1.50%
3 - 5 / BBB / 2.00%
2- 3 / BB / 2.50%
1.25 - 2 / B / 3.00%
0.75 - 1.25 / CCC / 5.00%
0.50 - 0.75 / CC / 6.50%
0.25 - 0.50 / C / 8.00%
< 0.25 / D / 10.00%
Student Response / Value / Correct Answer
Answer: / .95 / 0% / 0.85
Score: / 0/10
4.
You have been provided the information on the cost of debt and cost of capital that a company will have at a 10% debt ratio, and asked to estimate the UNLEVERED BETA. The long term treasury bond rate is 7%. Assume t
Debt Ratio / 10% / 23%
$ Debt / $ 1,500
EBIT / $ 1,000
Interest Expenses / $120
Interest Coverage Ratio / 6.16
Bond Rating / A
Interest Rate / 7%
Tax Rate / 40%
Beta / 1.85
The interest coverage ratios, ratings and spreads are as follows:
Coverage Ratio / Rating / Spread over Treasury
> 10 / AAA / 0.30%
7 -10 / AA / 1.00%
5 - 7 / A / 1.50%
3 - 5 / BBB / 2.00%
2- 3 / BB / 2.50%
1.25 - 2 / B / 3.00%
0.75 - 1.25 / CCC / 5.00%
0.50 - 0.75 / CC / 6.50%
0.25 - 0.50 / C / 8.00%
< 0.25 / D / 10.00%
Student Response / Value / Correct Answer
Answer: / 2.75 / 0% / 1.73
Score: / 0/10
5.
You have been provided the information on the cost of debt and cost of capital that a company will have at a 10% debt ratio, and asked to estimate the BETA at 24%. The long term treasury bond rate is 5%. Assume the
Debt Ratio / 10% / 24%
$ Debt / $ 1,500
EBIT / $ 1,000
Interest Expenses / $120
Interest Coverage Ratio / 5.11
Bond Rating / A
Interest Rate / 6%
Tax Rate / 40%
Beta / 1.93
The interest coverage ratios, ratings and spreads are as follows:
Coverage Ratio / Rating / Spread over Treasury
> 10 / AAA / 0.30%
7 -10 / AA / 1.00%
5 - 7 / A / 1.50%
3 - 5 / BBB / 2.00%
2- 3 / BB / 2.50%
1.25 - 2 / B / 3.00%
0.75 - 1.25 / CCC / 5.00%
0.50 - 0.75 / CC / 6.50%
0.25 - 0.50 / C / 8.00%
< 0.25 / D / 10.00%
Student Response / Value / Correct Answer
Answer: / 2.03 / 0% / 2.15
Score: / 0/10
6.
You have been provided the information on the cost of debt and cost of capital that a company will have at a 10% debt ratio, and asked to estimate the cost of equity at 21%. The long term treasury bond rate is 5%.
Debt Ratio / 10% / 21%
$ Debt / $ 1,500
EBIT / $ 1,000
Interest Expenses / $120
Interest Coverage Ratio / 6.86
Bond Rating / A
Interest Rate / 5%
Tax Rate / 40%
Beta / 1.06
The interest coverage ratios, ratings and spreads are as follows:
Coverage Ratio / Rating / Spread over Treasury
> 10 / AAA / 0.30%
7 -10 / AA / 1.00%
5 - 7 / A / 1.50%
3 - 5 / BBB / 2.00%
2- 3 / BB / 2.50%
1.25 - 2 / B / 3.00%
0.75 - 1.25 / CCC / 5.00%
0.50 - 0.75 / CC / 6.50%
0.25 - 0.50 / C / 8.00%
< 0.25 / D / 10.00%
Student Response / Value / Correct Answer
Answer: / 15.45 / 0% / 12.14
Score: / 0/10
7.
You have been provided the information on the cost of debt and cost of capital that a company will have at a 10% debt ratio, and asked to estimate the weighted cost of equity at 22%. The long term treasury bond rate is 6%. Assume the market risk premium is 5.9%. (10 points) Answer format is 12.3 for 12.30% and 17.55 for 17.55%.
Debt Ratio / 10% / 22%
$ Debt / $ 1,500
EBIT / $ 1,000
Interest Expenses / $120
Interest Coverage Ratio / 5.42
Bond Rating / A
Interest Rate / 6%
Tax Rate / 40%
Beta / 1.04
The interest coverage ratios, ratings and spreads are as follows:
Coverage Ratio / Rating / Spread over Treasury
> 10 / AAA / 0.30%
7 -10 / AA / 1.00%
5 - 7 / A / 1.50%
3 - 5 / BBB / 2.00%
2- 3 / BB / 2.50%
1.25 - 2 / B / 3.00%
0.75 - 1.25 / CCC / 5.00%
0.50 - 0.75 / CC / 6.50%
0.25 - 0.50 / C / 8.00%
< 0.25 / D / 10.00%
Student Response / Value / Correct Answer
Answer: / 13.76 / 0% / 9.93
Score: / 0/10
8.
You have been provided the information on the cost of debt and cost of capital that a company will have at a 10% debt ratio, and asked to estimate the weighted average cost of capital at 19%. The long term treasury bond rate is 5%. Assume the market risk premium is 5.9%. (30 points) Answer format is 12.3 for 12.30% and 17.55 for 17.55%.
Debt Ratio / 10% / 19%
$ Debt / $ 1,500
EBIT / $ 1,000
Interest Expenses / $120
Interest Coverage Ratio / 5.21
Bond Rating / A
Interest Rate / 6%
Tax Rate / 40%
Beta / 1.16
The interest coverage ratios, ratings and spreads are as follows:
Coverage Ratio / Rating / Spread over Treasury
> 10 / AAA / 0.30%
7 -10 / AA / 1.00%
5 - 7 / A / 1.50%
3 - 5 / BBB / 2.00%
2- 3 / BB / 2.50%
1.25 - 2 / B / 3.00%
0.75 - 1.25 / CCC / 5.00%
0.50 - 0.75 / CC / 6.50%
0.25 - 0.50 / C / 8.00%
< 0.25 / D / 10.00%
Student Response / Value / Correct Answer
Answer: / 11.25 / 100% / 10.72
Score: / 30/30
View Attempt 4 of 5
Title: / Application 5 Part IIIStarted: / December 2, 2012 8:06 PM
Submitted: / December 2, 2012 8:15 PM
Time spent: / 00:08:38
Total score: / 40/100 = 40%Total score adjusted by 0.0 Maximum possible score: 100
1.
You have been provided the information on the cost of debt and cost of capital that a company will have at a 10% debt ratio, and asked to estimate the cost of debt at 23%. The long term treasury bond rate is 5%. Assume the market risk premium is 6.7%. (10 points) Answer format is 12.3 for 12.30% and 17.55 for 17.55%.
Debt Ratio / 10% / 23%
$ Debt / $ 1,500
EBIT / $ 1,000
Interest Expenses / $120
Interest Coverage Ratio / 5.09
Bond Rating / A
Interest Rate / 7%
Tax Rate / 40%
Beta / 1.76
The interest coverage ratios, ratings and spreads are as follows:
Coverage Ratio / Rating / Spread over Treasury
> 10 / AAA / 0.30%
7 -10 / AA / 1.00%
5 - 7 / A / 1.50%
3 - 5 / BBB / 2.00%
2- 3 / BB / 2.50%
1.25 - 2 / B / 3.00%
0.75 - 1.25 / CCC / 5.00%
0.50 - 0.75 / CC / 6.50%
0.25 - 0.50 / C / 8.00%
< 0.25 / D / 10.00%
Student Response / Value / Correct Answer
Answer: / 6 / 0% / 6.50
Score: / 0/10
2.
You have been provided the information on the cost of debt and cost of capital that a company will have at a 10% debt ratio, and asked to estimate the after tax cost of debt at 18%. The long term treasury bond rate is 7%. Assume the market risk premium is 6.4%. (10 points) Answer format is 12.3 for 12.30% and 17.55 for 17.55%.
Debt Ratio / 10% / 18%
$ Debt / $ 1,500
EBIT / $ 1,000
Interest Expenses / $120
Interest Coverage Ratio / 6.65
Bond Rating / A
Interest Rate / 6%
Tax Rate / 40%
Beta / 1.92
The interest coverage ratios, ratings and spreads are as follows:
Coverage Ratio / Rating / Spread over Treasury
> 10 / AAA / 0.30%
7 -10 / AA / 1.00%
5 - 7 / A / 1.50%
3 - 5 / BBB / 2.00%
2- 3 / BB / 2.50%
1.25 - 2 / B / 3.00%
0.75 - 1.25 / CCC / 5.00%
0.50 - 0.75 / CC / 6.50%
0.25 - 0.50 / C / 8.00%
< 0.25 / D / 10.00%
Student Response / Value / Correct Answer
Answer: / 5.50 / 0% / 5.10
Score: / 0/10
3.
You have been provided the information on the cost of debt and cost of capital that a company will have at a 10% debt ratio, and asked to estimate the weighed after tax cost of debt at 19%. The long term treasury bond rate is 6%. Assume the market risk premium is 6.9%. (10 points) Answer format is 12.3 for 12.30% and 17.55 for 17.55%.
Debt Ratio / 10% / 19%
$ Debt / $ 1,500
EBIT / $ 1,000
Interest Expenses / $120
Interest Coverage Ratio / 5.32
Bond Rating / A
Interest Rate / 5%
Tax Rate / 40%
Beta / 1.35
The interest coverage ratios, ratings and spreads are as follows:
Coverage Ratio / Rating / Spread over Treasury
> 10 / AAA / 0.30%
7 -10 / AA / 1.00%
5 - 7 / A / 1.50%
3 - 5 / BBB / 2.00%
2- 3 / BB / 2.50%
1.25 - 2 / B / 3.00%
0.75 - 1.25 / CCC / 5.00%
0.50 - 0.75 / CC / 6.50%
0.25 - 0.50 / C / 8.00%
< 0.25 / D / 10.00%
Student Response / Value / Correct Answer
Answer: / -.07 / 0% / 0.85
Score: / 0/10
4.
You have been provided the information on the cost of debt and cost of capital that a company will have at a 10% debt ratio, and asked to estimate the UNLEVERED BETA. The long term treasury bond rate is 6%. Assume t
Debt Ratio / 10% / 24%
$ Debt / $ 1,500
EBIT / $ 1,000
Interest Expenses / $120
Interest Coverage Ratio / 5.13
Bond Rating / A
Interest Rate / 5%
Tax Rate / 40%
Beta / 1.42
The interest coverage ratios, ratings and spreads are as follows:
Coverage Ratio / Rating / Spread over Treasury
> 10 / AAA / 0.30%
7 -10 / AA / 1.00%
5 - 7 / A / 1.50%
3 - 5 / BBB / 2.00%
2- 3 / BB / 2.50%
1.25 - 2 / B / 3.00%
0.75 - 1.25 / CCC / 5.00%
0.50 - 0.75 / CC / 6.50%
0.25 - 0.50 / C / 8.00%
< 0.25 / D / 10.00%
Student Response / Value / Correct Answer
Answer: / 1.33 / 100% / 1.33
Score: / 10/10
5.
You have been provided the information on the cost of debt and cost of capital that a company will have at a 10% debt ratio, and asked to estimate the BETA at 20%. The long term treasury bond rate is 7%. Assume the
Debt Ratio / 10% / 20%
$ Debt / $ 1,500
EBIT / $ 1,000
Interest Expenses / $120
Interest Coverage Ratio / 6.82
Bond Rating / A
Interest Rate / 5%
Tax Rate / 40%
Beta / 1.94
The interest coverage ratios, ratings and spreads are as follows:
Coverage Ratio / Rating / Spread over Treasury
> 10 / AAA / 0.30%
7 -10 / AA / 1.00%
5 - 7 / A / 1.50%
3 - 5 / BBB / 2.00%
2- 3 / BB / 2.50%
1.25 - 2 / B / 3.00%
0.75 - 1.25 / CCC / 5.00%
0.50 - 0.75 / CC / 6.50%
0.25 - 0.50 / C / 8.00%
< 0.25 / D / 10.00%
Student Response / Value / Correct Answer
Answer: / 3.09 / 0% / 2.09
Score: / 0/10
6.
You have been provided the information on the cost of debt and cost of capital that a company will have at a 10% debt ratio, and asked to estimate the cost of equity at 22%. The long term treasury bond rate is 7%.
Debt Ratio / 10% / 22%
$ Debt / $ 1,500
EBIT / $ 1,000
Interest Expenses / $120
Interest Coverage Ratio / 6.98
Bond Rating / A
Interest Rate / 6%
Tax Rate / 40%
Beta / 1.01
The interest coverage ratios, ratings and spreads are as follows:
Coverage Ratio / Rating / Spread over Treasury
> 10 / AAA / 0.30%
7 -10 / AA / 1.00%
5 - 7 / A / 1.50%
3 - 5 / BBB / 2.00%
2- 3 / BB / 2.50%
1.25 - 2 / B / 3.00%
0.75 - 1.25 / CCC / 5.00%
0.50 - 0.75 / CC / 6.50%
0.25 - 0.50 / C / 8.00%
< 0.25 / D / 10.00%
Student Response / Value / Correct Answer
Answer: / 11.20 / 0% / 12.76
Score: / 0/10
7.
You have been provided the information on the cost of debt and cost of capital that a company will have at a 10% debt ratio, and asked to estimate the weighted cost of equity at 19%. The long term treasury bond rate is 6%. Assume the market risk premium is 6.5%. (10 points) Answer format is 12.3 for 12.30% and 17.55 for 17.55%.
Debt Ratio / 10% / 19%
$ Debt / $ 1,500
EBIT / $ 1,000
Interest Expenses / $120
Interest Coverage Ratio / 5.08
Bond Rating / A
Interest Rate / 6%
Tax Rate / 40%
Beta / 1.14
The interest coverage ratios, ratings and spreads are as follows:
Coverage Ratio / Rating / Spread over Treasury
> 10 / AAA / 0.30%
7 -10 / AA / 1.00%
5 - 7 / A / 1.50%
3 - 5 / BBB / 2.00%
2- 3 / BB / 2.50%
1.25 - 2 / B / 3.00%
0.75 - 1.25 / CCC / 5.00%
0.50 - 0.75 / CC / 6.50%
0.25 - 0.50 / C / 8.00%
< 0.25 / D / 10.00%
Student Response / Value / Correct Answer
Answer: / 13.65 / 0% / 11.28
Score: / 0/10
8.
You have been provided the information on the cost of debt and cost of capital that a company will have at a 10% debt ratio, and asked to estimate the weighted average cost of capital at 22%. The long term treasury bond rate is 5%. Assume the market risk premium is 5.0%. (30 points) Answer format is 12.3 for 12.30% and 17.55 for 17.55%.
Debt Ratio / 10% / 22%
$ Debt / $ 1,500
EBIT / $ 1,000
Interest Expenses / $120
Interest Coverage Ratio / 5.44
Bond Rating / A
Interest Rate / 5%
Tax Rate / 40%
Beta / 1.74
The interest coverage ratios, ratings and spreads are as follows:
Coverage Ratio / Rating / Spread over Treasury
> 10 / AAA / 0.30%
7 -10 / AA / 1.00%
5 - 7 / A / 1.50%
3 - 5 / BBB / 2.00%
2- 3 / BB / 2.50%
1.25 - 2 / B / 3.00%
0.75 - 1.25 / CCC / 5.00%
0.50 - 0.75 / CC / 6.50%
0.25 - 0.50 / C / 8.00%
< 0.25 / D / 10.00%
Student Response / Value / Correct Answer
Answer: / 12.20 / 100% / 12.20
Score: / 30/30
View Attempt 5 of 5