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
An investment will pay $200 at the end of every of the next 3 years, $400 at the end of Year 4, $600 at the end of Year 5, and $800 at the end of Year 6. If other investments of eq

A huge number of variations of ROT are determined in practice, based upon how "Investment" and "Return" are explained "Investment" may be explained to comprise any of the subsequen

Illustration of Deffered Tax A firm bought an item of plant at a total amount of £50,000. During the first year, the firm provided for depreciation of 10,000. The item of plant

THE STATEMENT OF CHANGES IN EQUITY This is a very important report because it explains the movements in the shareholder funds during the year and also acts as a link between the

What is Acid-test ratio A measurement of the capability of a business to meet its short-term commitments. It is considered by dividing excluding stock, current assets, by curre

effects of public debt on production, d

Explain the meaning of the terms "tangible" and "intangible" and discuss how these terms are used in describing assets.

What are the sailent features of branches

Explain:- Q.1 Explain the ways in which the needs of internal and external users of accounting information are the same and different. Q.2 Why is it important for financial sta

Received 10,000 contribution from bill london in exchange for common stock What 2 accounts are used