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
1. (a) A barbell is a approach of maintaining a portfolio of securities concentrated at two extremes in terms of maturity date very short term and very long term. A positive

Interest Rate Derivatives: India's first trading on interest rate derivatives began in the National Stock Exchange of India (NSE) in June 2003 with futures on 91-day treasury

LEAMINGER PLC (a) Purchase outright (2) Balancing allowance Tax effect = 93,906 × 30% = 28,172 Finance lease Annuity Factor (AF) at 10% for 4 year

Define the General principles of the city code General principles of the city code Information available to all shareholders and shoul

Develop a scenario for the future growth of the firm e.g. through using a SWOT analysis to identify an appropriate outcome (this will be covered in lectures) • If it is to grow

using the operating cycle and any other financial management knowledge,discuss the applicabilty of such cycle to poultry

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

Uses of Index Numbers 1. Establishes trends Index numbers when analyzed reveal a general trend of the phenomenon under study. The available figures for inflation based

Are there any ways to analyze and value seasonal businesses? Seasonal businesses can be valued by discounting flows using annual data, but this needs some adjustments. The righ

Is there an optimal capital structure? What is it and how can it be calculated? There is no optimal capital structure. Capital structure is a variable which depends on the incl