Determine the wacc given the given assumptions

Assignment Help Finance Basics
Reference no: EM131174248

FINANCE

750-1,000 words

Respond to the following scenario with your thoughts, ideas, and comments. Be substantive and clear, and use research to reinforce your ideas.

Mary Francis has just returned to her office after attending preliminary discussions with investment bankers. Her last meeting regarding the intended capital structure of Apix went well, and she calls you into her office to discuss the next steps.

"We will need to determine the required return for our intended project so that we have a decision criteria defined for the project," she says.
"Do you have the information I need to describe capital structure and to calculate the weighted average cost of capital (WACC)?" you ask.

"I do," she smiles. "We can determine the target WACC for Apix Printing Inc., given these assumptions," she says as she hands you a piece of paper that says the following:

• Weights of 40% debt and 60% common equity (no preferred equity)
• A 35% tax rate
• Cost of debt is 8%
• Beta of the company is 1.5
• Risk-free rate is 2%
• Return on the market is 11%
"Great," you say. "Thanks."

"Be sure to indicate how these costs of capital might be used to determine the feasibility of the capital project," Mary says. "I want your recommendation about which is more appropriate to apply to project evaluation, too. Let me know what you think."

"One more thing," she says as she stands up to signal the end of the meeting. "You did a good job with the explanations that you provided Luke the other day. Would you have time to definemarginal cost of capital for me so I can include it in my discussions with investors? You seem to have a knack for making things accessible to nonfinancial folks."

"No problem," you say. "I'm glad my explanations are so useful!"

For this assignment, complete the following:

• Describe capital structure.
• Determine the WACC given the above assumptions.
• Indicate how these might be useful to determine the feasibility of the capital project.
• Recommend which is more appropriate to apply to project evaluation.
• Define marginal cost of capital.

Reference no: EM131174248

Questions Cloud

Understanding of the pathophysiology and risk factors : demonstrate an understanding of the pathophysiology and risk factors of common alterations in movement and coordination; regulation, and ingestion, digestion, absorption and metabolism
Affects the decision-making opportunities : Identify one environmental factor or risk that affects the decision-making opportunities within your organization. Provide a brief description of the concerns and potential solutions for addressing the concerns or risks. Are there financial requireme..
What were the main factors that caused the fire : What recommendations would you have made to the building design or maintenance that you believe would have prevented the fire from starting or reduced the severity of the outcome?
Using the probability of insolvency model discussed : As a financial institutions and market analyst for MoreGaine Securities, a highly reputable financial institutions’ securities underwriter, you must prepare an analysis of the financial condition of a broad range of financial insitituions of various ..
Determine the wacc given the given assumptions : Determine the WACC given the above assumptions. Indicate how these might be useful to determine the feasibility of the capital project. Recommend which is more appropriate to apply to project evaluation.
Role of globalization or structural changes in world economy : What is the role of "globalization" or structural changes in the world economy? - What sort of place-making efforts can you observe?
How will you communicate the change to the vendor : What is the probability that this opportunity could occur? What is the impact? What are the risks (adverse effect) that are introduced by this change in plans? How will you communicate this change to the vendor?
Monopoly price for electricity : The CEO of the company claims that because all of the profits will be given back to the citizens, it makes economic sense to charge a monopoly price for electricity. Explain the social cost of monopoly power.
Make a mistake in calculating price ceiling for monopolist : Consider a situation where a monopolist faces the foloowing inverse demand curve, p = 240 - 2q and constant marginal costs of MC = 40. Suppose that a regulator imposed a price ceiling on the monopolist of p = MC = 40. Suppose the regulator was suscep..

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd