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RD, Certified Public Accountant (CPA)
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Experience:  MBA, CPA
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Touring Enterprises, Inc., has a capital structure consisting

Customer Question

Touring Enterprises, Inc., has a capital structure consisting of $18 million in long-term debt and $7 million in common equity. There is no preferred stock outstanding.
The interest rate paid on the long-term debt is 10%. The firm is in the 35% tax bracket.
On the common equity (stock), the Company pays an annual dividend of $1.20 and expects to increase the dividend by 5% per year. The market price of the stock is $50.
Based on this information, answer the following questions:
1. Calculate Touring Enterprises' weighted average cost of capital (WACC). Work as follows: first, compute the after-tax cost of debt, then compute the cost of equity. Cite both formulas, and show all your work.
Then, determine the weightings of debt and equity in the capital structure.
Lastly, using your answers to the above questions, calculate the WACC.
2. If Touring Enterprises were to increase the percentage of debt in its capital structure, what would happen to the WACC ? No calculation is necessary- simply provide a short, non-numeric response.
3. Identify and explain the benefits and risks of debt financing. A two-paragraph answer will suffice.
Submitted: 4 years ago.
Category: Finance
Expert:  RD replied 4 years ago.
Link to solution

Soln
RD, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 8784
Experience: MBA, CPA
RD and 2 other Finance Specialists are ready to help you
Customer: replied 4 years ago.
I don't see my answer
Expert:  RD replied 4 years ago.
The soln link should open up an excel worksheet with the answers.
Customer: replied 4 years ago.
Thank you. I needed that help. I have two more questions I need help with, can you help me?
Expert:  RD replied 4 years ago.
You can post it here and I will try
Customer: replied 4 years ago.

Q1. Why is Amazon's cash cycle so much shorter than that of competitor Barnes & Noble ? How does this comparison affect financial management decisions of other retailers ? Q2. How does Boeing achieve a cash cycle of negative 100 days ? Q3. Define the following terms as they apply to our work in FIN 301...in ten words or less: 1.capital structure 2.working capital 3.assets 4.liabilities 5.retained earnings 6.liquidity 7.leverage 8.Sarbanes-Oxley 9.GAAP 10.market value versus book value 11.depreciation 12.straight-line versus accelerated depreciation 13.solvency 14.profitability 15. pv 16.fv 17.PVA 18.FVA 19.simple interest 20.compound interest 21.discount rate 22.Rule of 72 23.annuity 24.required return formula 25.NPV 26.NPV decision rule 27.payback 28.IRR 29.formula for cost of equity 30.formula for cost of debt 31.WACC 32.credit facility 33.venture capital 34.operating cycle 35.inventory period 36.accounts receivable period 37.cash cycle 38.profit margin 39.ROE 40. debt/equity ratio

Customer: replied 4 years ago.

Compose a 2-4 page report, single-spaced, on the following topic. Be sure to illustrate your report with relevant financial numbers and data, and to explain the significance of this data. BACKGROUND INFORMATION: During the Carter administration, long-term US Treasury yields exceeded 15%, and short-term T-Bills yielded near 20%. After Reagan's inauguration, interest rates began to fall as Fed Chairman Volcker's restrictive monetary policy succeeded in containing inflation. Over the past 25 years, US rates have steadily declined: T-Bills are hovering under 1% and the long bond is yielding about 4%. Lately, though, rising oil prices have incited inflationary forces. China and other developing nations have increased their consumption for oil, metals, materials, and food. Thus, both foreign and domestic factors have spurred demand and are contributing to rising prices on a global scale. In addition to this commodity-induced inflation, US consumers are faced with rising costs for essential services such as healthcare and education. The Chairman of the Federal Reserve, Ben Bernanke, is faced with a dilemma. Should the Fed increase rates to contain inflation; or, should the Fed keep rates very low to spur the US economy which is beset by a collapse in home values, an extensive banking crisis, and a faltering stock market ? YOUR ASSIGNMENT: Given this economic background...Compose a 2-4 page report, single-spaced, on the following topic: If the Fed decides to raise interest rates next year, what effect would rising rates have upon the following: (1) Consumer financing for big-ticket items such as autos and homes; (2) the present and future values of annuities; (3) the NPV calculation; (4) the WACC; (5) corporate earnings ? Be sure to illustrate your report with relevant financial numbers. Hint: for topic (3), above, one approach you might adopt is to cite the NPV calculation from the previous case problem, then to contrast it against a new calculation performed with a higher interest rate. Cite the numeric effect upon the NPV, and then explain its rationale and its significance. This is the kind of "numeric illustration" that you should provide for each of the five topic sections.

Expert:  RD replied 4 years ago.
Sorry....but I am unable to help on these questions.
Customer: replied 4 years ago.

Why

 

Expert:  RD replied 4 years ago.
I know some of the answers to Amazon Q. Infact I can figure all those but it is bit time consuming and I do not know the other one.
Customer: replied 4 years ago.
ok, that is fine, can u give me what you know? then with the other question is there anyone you can refer me too who can answer this question?
Expert:  RD replied 4 years ago.
Link to some of the answer.

Ans

I would suggest you contact Business Tutor. he may have the answers.

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