Calculate the wacc, Accounting Basics

The capital structure of Wild West Inc. is as follows:

-         Debts: $5,000,000 (face value) bonds with coupon rate at 8.00% and current price at par

-         Preferred shares: $2,000,000 (face value) paying 5% dividends which is trading at 95 percent

-         Common shares: Current stock price at $5 per share with 1,000,000 shares issued and outstanding.  The risk-free rate is 5%, the market risk premium is 6%, and the beta of Wild West Inc. is 1.15

-         Marginal tax rate is 40% 

Requirements: Show your calculation

a.       Calculate the WACC for Wild West Inc. 

b.      Should Wild West Inc. accept an IRR of 7% new project which is of similar risk as all the existing projects of the Big Plan?  Why and why not? 

c.       Should Wild West Inc. accept an IRR of 12% new project which is considered 30% higher in risk as compared with all the existing projects of the Big Plan?  Why and why not?

Posted Date: 8/11/2012 1:33:05 AM | Location : United States







Related Discussions:- Calculate the wacc, Assignment Help, Ask Question on Calculate the wacc, Get Answer, Expert's Help, Calculate the wacc Discussions

Write discussion on Calculate the wacc
Your posts are moderated
Related Questions
Problems: Please show all calculations. Claudette, Inc., provides warranties for many of its products. The January 1, 2014, balance of the Estimated Warranty Liability account

Q. What are Accrued items explain with example? Delayed items consist of two types of adjusting entries asset/expense adjustments and liability/revenue adjustments. For instanc


Describe how the QuickZoom feature of QuickBooks does or does not provide the same help in the statement of cash flows as it does in the income statement.

GAAP that is Generally Accepted Accounting Principles encompass the conventions, rules and processes necessary to explain accepted accounting practice at an exact time........gener

Describe what journal entry pass in case of vat refundable and in case of vat payable?       Ans) In case of vat payable: output vat Toinput vat To vat payable In case o

Matilda Crone owns and operates a public relations firm called Dance Fever. The following amounts summarize her business on August 31, 2014:

Harry and Sally were divorced three years ago. In July of the current year, their son, Joe, broke his arm falling out of a tree. Joe lives with Sally and Sally claims him as a de

Q. Equity segment of a corporate balance sheet? The stockholders' equity segment of a corporate balance sheet can become more complex as you will see later in the text. But the

Calculate WACC and Rate of Return Capital Structure: 50% debt and 50% equity financing Current cost of debt is 2% above prime (Prime is currently 2.5%) cost of equity is e