Find out weighted average cost of capital, Finance Basics

Mermaid Coffee Corporation (MCC) has 1,000,000 shares of stock currently trading at $42 per share. The company has issued 20,000 bonds, each with market value $928.59 and yield to maturity 7%. MCC asset beta is 1.3, the risk free rate is 5%, and the expected market risk premium is 5%.

a. Assuming there are no corporate taxes, what is the firm's weighted average cost of capital (WACC)?

b. Now, assume that a 35% corporate tax rate applies to this firm. All of the information given in the introduction still applies, but your answer to part (a) doesn't necessarily apply. Recalculate the WACC under this assumption and state whether this firm would be willing to invest in a project that costs $1,000,000 today and that will have a net (after-tax) payoff of $1,240,000 exactly one year from now?

(You may assume the project is as risky as the rest of the firm)

 

Posted Date: 3/13/2013 6:25:03 AM | Location : United States







Related Discussions:- Find out weighted average cost of capital, Assignment Help, Ask Question on Find out weighted average cost of capital, Get Answer, Expert's Help, Find out weighted average cost of capital Discussions

Write discussion on Find out weighted average cost of capital
Your posts are moderated
Related Questions
advances from foreigners

risk structure of interest rates 1. Default risk 2. Liquidity 3. Income tax consideration 4. Expectations theory

This case has been framed in order to test the skills in evaluating a credit request and reaching a correct decision

Financial Management On the other hand a financial manager has to meet the company's strategic or long term needs as long term investment are helpful to the company since:

Investment Bank A lending entity is engaged in all the phases of privacy offerings the including managing, underwriting, trading, and the distributing new security issues.

Earnings Method or Earning Basis Valuation By using the earning valuation method, a company will employ its P/E ratio to value its shares. P/E    =  MV/E MV    =   E x P


Ask questioAustralian’s Speleological App Projectn #Minimum 100 words accepted#

How to calculate the present value of assignment??