Determine the wacc, Financial Accounting

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.  Verify the WACC for Wild West Inc. (7 marks)

b.   Should Wild West Inc. accept an IRR of 7% new project which is of same risk as all the existing projects of the Big Plan?  Why and why not? (2 marks)

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: 3/16/2013 8:50:35 AM | Location : United States







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

Write discussion on Determine the wacc
Your posts are moderated
Related Questions
evaluate the importance of leverage in financial management of a small scale business

Table on subsequent page lists 21 ratios being calculated by the Bombay Stock Exchange. Tick the board class to that each of the 21 ratios belongs to the blank columns of the Table

Evaluate the importance of leverage in financial management of a small scale company

Mason Co. issued $860,000 of 5 year, 13% with interest payable semiannually, at a market (efffective) interest rate of 12% Determine the present value of the bonds payable, using t

Define the term Relevance - accounting information Accounting information should have the ability to influence decisions. Except this characteristic is present, there is ac

Return on Investment (ROI) - Ratio measure of the profits achieved by a firm by its fundamental operations. An indicator of management's general efficiency andeffectiveness. The si

what managers should know about internal rate of return (IRR) and why?

I need extra help with receivable turnover, days'' sales uncollected, and bank reconciliation.

You were recently hired by E&T Boats, Inc. to assist the company with its financial planning and to evaluate the company's performance.  E&T Boats, Inc. builds and sells boats to o

profit margin 2.5%, equity multiplier 2.0,sales $50000, common equity $25000.compute return on common equity.