What is the weighted average cost of capital to the firm

Assignment Help Financial Management
Reference no: EM13729473

The risk free rate is 3%, measured by a long-term U.S. government bond. The total market return is expected to be 11% over the foreseeable future. The Beta coefficient is 3.0 on the CAPM when finding out its hurdle rate for the project. The company expects to pay 5% for any new debt it receives, and its corporate tax rate is 40%.

To move forward, the company will expect to need $200 million in capital now, which they plan to finance through a combination of 30% debt and 70% equity infusions. The cash flows from this investment are expected to return $0 the first year, and then $70 million per year for the next 3 years, and then the project will be sold for $150 million

What is the weighted average cost of capital (WACC) to the firm for this project? (the “hurdle rate”)

What is the NPV of this project given the hurdle rate as you calculated WACC?

If the WACC (which is the hurdle rate here) was 10%, what would the NPV be?

What is the maximum the firm should pay before they would NOT invest in this project at a 10% hurdle rate? (In other words, what is the maximum amount of initial investment to make the company meet the 10% hurdle rate, exactly).

Reference no: EM13729473

Questions Cloud

Present an example of a business situation : Present an example of a business situation that you believe would lend itself to the use of a quantitative business model. Clearly explain how the model could be used in this situation.
Installed an offshore production facility : An oil company has installed an offshore production facility for $10 million. The annual maintenance cost of the facility is $60,000 per year for the first year, increasing by $10,000 per year for the next 9 years. In the 11th year, a major overhaul ..
Construct user accounts with necessary privileges. : • Construct user accounts with necessary privileges.• Assign user roles to the accounts created• Apply access mechanisms to allow or disallow access, based on data classification
Explain the organization''s mission and vision statements : Explain the relationship between the organization's mission and vision statements and goals and strategies at the corporate level. Include how the mission, vision, goals, and strategies relate to the division or department levels.
What is the weighted average cost of capital to the firm : The risk free rate is 3%, measured by a long-term U.S. government bond. The total market return is expected to be 11% over the foreseeable future. The Beta coefficient is 3.0 on the CAPM when finding out its hurdle rate for the project. The company e..
Performing an audit of needs and overall strategies : When deciding to form a strategic partnership, the text recommends performing an audit of needs and overall strategies with regard to logistics operations. What is the goal of the audit, and what types of information should come from the audit?
Choose one area of rapid technological change in it : 4. Choose one area of rapid technological change in IT or Computer Science, research and report on recent developments and the outlook for the future in the area that you have chosen. You will need to provide both in text citations and bibliography e..
Determine the importance of bankers : From the second case study and e-Activity, determine the importance of bankers having good working relationships with their clients. Support your response with two (2) examples that illustrate such importance
Describe your career path to your current position : Describe your career path to your current position. Include information about education and experiences. Discuss the value of best evidence as a driving force in delivery of nursing care at your facility.

Reviews

Write a Review

 

Financial Management Questions & Answers

  The type of risk which can be diversified away is called

1 the type of risk that can be diversified away is called .a unsystematic riskb systematic riskc nondiversifiable riskd

  What price would bond investors be willing to pay

Nedo Enterprises originally sold bonds in 2011 with a 10 year maturity, $1000 par, 6% coupon paying annual interest. It is now 2015 and 4 years later. Bonds of similar risk selling at par know have a 5% coupon rate. What price would bond investors be..

  Compute the percentages for all items

Total revenue is always 100 percent. Be sure to use the formula function in Microsoft Excel to show the formulas for each of the percentage you compute.

  Determine the cost of equity based on capm

Determine the cost of equity based on CAPM? Compute the firm's WACC? Estimate the cash flow for each year of this project

  Evaluating a project for a small manufacturing firm

You are evaluating a project for a small manufacturing firm. The firm has provided the following information: the initial cost of the project is $2,500 for equipment purchase; the CCA rate is 10 percent; tax rate is 25 percent; and the pre-tax cash f..

  Explain what is securitization

What is securitization? What are the benefits that banks can get from it? What impact is securitization likely to have on the quality of assets that banks keep in their portfolio?

  Complete the financial reporting for each period and

complete the financial reporting for each period and develop recommendations using the templates provided. procedure1.

  Investments-annually in a mutual fund

You invest $3,000 annually in a mutual fund that earns 10% annually, and you reinvest all the distributions. How much will you have in the account at the end of 20 years?

  Question 1consider an asset which pays continuous

question 1consider an asset which pays continuous dividend.nbsp letnbsp s 100 and r10.nbspsuppose the 6-month futures

  1 a competitive hospital maintains current equipment and

1. a competitive hospital maintains current equipment and purchases new in order to stay current with the latest

  What is amount of interest that is included in loan payment

A 10-year loan in the amount of $238,000 is to be repaid in equal annual payments. The interest rate is 7 percent, compounded annually. What is the amount of interest that is included in the loan payment for Year 3?

  Stock price according to constant growth dividend model

The last dividend of delta, inc. was $8.15, the growth rate of dividends is expected to be 2.48 percent, and the required rate of return on this stock is 11.05 percent. What is the stock price according to the constant growth dividend model (Godron m..

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