Estimate weighted-average cost of capital assuming tax rate

Assignment Help Financial Management
Reference no: EM13950148

The total market value of Okefenokee Real Estate Company's equity is $6 million, and the total value of its debt is $4 million. The treasurer estimates that the beta of the stock currently is 1.2 and that the expected risk premium on the market is 5%. The Treasury bill rate is 3%.

a. What is the required rate of return on Okefenokee stock?

Required rate of return _______%

b. What is the beta of the company’s existing portfolio of assets? The debt is perceived to be virtually risk-free. (Round your answer to 2 decimal places.)

Weighted-average beta ________

c. Estimate the weighted-average cost of capital assuming a tax rate of 35%. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

   WACC _______%

d. Estimate the discount rate for an expansion of the company’s present business.(Do not round intermediate calculations. Round your answer to 2 decimal places.)

Discount rate _______%

e. Suppose the company wants to diversify into the manufacture of rose-colored glasses. The beta of optical manufacturers with no debt outstanding is 1.4. What is the required rate of return on Okefenokee’s new venture? (You should assume that the risky project will not enable the firm to issue any additional debt.)

Required rate of return _______%

Reference no: EM13950148

What would his dollar profit on the rights be

Todd Winningham IV has $4,300 to invest. He has been looking at Gallagher Tennis Clubs Inc. common stock. Gallagher has issued a rights offering to its common stockholders. Se

Estimate ventures constant growth rate

Estimate a venture’s constant growth rate (g) based on the following information: terminal value = $400,000; current year’s net income = $20,000; next year’s expected cash flo

Appropriate expected rates of return for three securities

The expected return for the general market is 13.0% and the risk premium in the market is 8.9%. Tasaco, LMB, and Exxos have betas of 0.849, 0.681, and 0.581 respectively. What

Clearly state in your own words the surprise ending

Since you were expecting a different ending, evaluate how successful the author was in convincing you to accept the validity of the surprise ending that was not clearly sugges

Time horizon-tax considerations,and inflation concerns

Gary Lee Weinrib (Mr. W) is a 60 year old divorced musician. He is planning on retiring in the next two years. He will quit touring and recording. He is in reasonably good hea

Financing outstanding-debt and market-common stock

The Saunders Investment Bank has the following financing outstanding. Debt: 120,000 bonds with a coupon rate of 8 percent and a current price quote of 110; the bonds have 20 y

Do an analysis of the companys short term activity ratios

As a first step, you perform a liquidity analysis. You then do an analysis of the company's short-term activity ratios. Your calculations and appropriate industry norms are

Bond with a face value-what is yield to maturity

A bond with a face value of $1,000 has 14 years until maturity, carries a coupon rate of 6.6%, and sells for $1,079. What is the yield to maturity if interest is paid semi ann

Reviews

Write a Review

 
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