Calculate the wacc and irr, Financial Management

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

  1. Debts: $5,000,000 (face value) bonds with coupon rate at 8.00% and current price at par
  2. Preferred shares: $2,000,000 (face value) paying 5% dividends which is trading at 95 percent
  3. 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
  4. Marginal tax rate is 40%

 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: 2/16/2013 1:19:52 AM | Location : United States







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

Write discussion on Calculate the wacc and irr
Your posts are moderated
Related Questions
How is international financial management different from domestic financial management? Answer:  There are three main dimensions that set separately international finance from

What is Settlement date? Please provide me report on Settlement date. It is about 2000 words count report on topic Settlement date.

What do you meant by market-based and bank-based financial systems? Market-based versus bank-based financial systems implications. The presence of market-based and bank-base

Explain the difference between performing the capital budgeting analysis from the parent firm’s perspective as opposed to the project perspective. The aim of the financial mana

what are the limitations of using projected data

What are the primary variables being balanced in the EOQ inventory model?  Explain The primary variables mortal balanced in the EOQ model are ordering costs and carrying costs.

Swap-Linked Notes: Interest rate swaps are derivative products which help in transforming the cash flows of existing debt issues. These are not only useful in covering the exis

Forward market evaluation Net receipt in 1 month = 240000 - 140000 = $100000 Nedwen Co requires to sell dollars at an exchange rate of 1.7829 + 0.003 = $1.7832 per £ Ster

Tax-backed debt obligations are the debt instruments issued by counties, states, cities, towns, special districts and school districts. These are secured by some

What is the Investment evaluation Investment evaluation the primary purpose of measuring the cost of capital is its use as a financial standard evaluating investment projects