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
BASRIL PLC (a) (i) Analysis of projects assume they are divisible. Project 2 NPV at 12% = (140800 × 3·605) - 450000 = $57584 Project 2 profitability index = 5

A. Initial evaluation Comment on the structure of the attached portfolio, and on the financial risks facing Copper Based plc (CB), making use of what you know about how a port

What is Commercial Paper? Please provide me report on Estimation of Commercial Paper. It is about 2000 words count report on topic Commercial Paper.

The Financial Services Authority in the United Kingdom: The Financial Services Authority (FSA) in the United Kingdom (UK) is the financial watchdog. It is a company limited by

Foreign Exchange Market Equilibrium: We say that the foreign exchange market is in equilibrium when deposits of all currencies o er the same expected rate of return (when retu

Suppose you can decrease the cash on hand and the company will require holding Net Working Capital (including cash) equal to 4% of the next year's sales going forward.  This will r

Capital structure theory: Use the following information to answer the questions: Case I: Capital structure theory ( no tax ) Case II: Capital struct

operating cycle in vegetable growing business in uganda..

What role does depreciation play in calculating incremental cash flows? Depreciation expense is a tax deductible expense and hence influences cash flow by its effect on taxes.Dep

undertake a critical review of the current academic literature to determine the reasons for benefits of and the costs to companies of cross listing.