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
Demerits of Pay Back Method:- (i) It ignores the Cash Flows after the Pay Back Period: - The main shortcoming of this method is that it completely ignores all cash inflows subs

For this assessment, you will be required to select a role within the financial services industry that interests you. Undertake your own research to find out about the role you hav

You work for a small, for-profit health system. Your system is interested in acquiring a Critical Access Hospital (CAH) at a price of $65,000,000. The purchase would be made from r


the approach focussed mainly on the financial problems of a corporate enterprise

Why is capital budgeting analysis so important to the firm? The major goal of the financial manager is to maximize shareholder wealth. Capital investments along with positive N

ORGANISATION FOR BUDGETARY CONTROL (or) PRE-REQUISITES FOR THE INTRODUCTION OF AN EFFECTIVE BUDGETARY CONTROL SYSTEM 1.   BUDGET CENTRE:  It is a section of the organization

Recent surveys of corporate exchange risk management practices point out that many U.S. firms simply do not hedge. How would you explain this result? Answer:  There can be severa

PARTICIPANTS IN THE SECONDARY MARKET The players in the secondary capital market include: Individual Investors (Public). Companies. Mutual funds. Financial Insti

Cost of Preference capital (K ) The fixed rate of dividend payable to the Preference share holders is the cost of Preference capital.  Exactly, the cost of Preference capital