Weighted average cost of capital, Finance Basics

Below is information provided for two companies, A and B.  Assuming a risk-free rate of 2.5%, an effective tax rate of 40%, and a market risk premium of 5.5%, estimate the Weighted Average Cost of Capital (or WACC) for companies A & B.

                             Company A               Company B

Beta                          0.86                    0.78

Credit rating             AA                             A

Cost of debt

(before-tax)          6.885%                  7.125%

Debt to total

Capital                    34%                     41%

Posted Date: 2/23/2013 4:17:46 AM | Location : United States







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

Write discussion on Weighted average cost of capital
Your posts are moderated
Related Questions
Struggling with your final year projects, terms paper writing, research paper writing, thesis writing, engineering and programming projects? Experts are available 24x7 to help you

Drawback of Stock Repurchases 1. High price A company may find it not easy to repurchase shares at their recent value and price paid may be higher to the detriment of rem

The operating profit (EBIT) of ABC Ltd is Rs. 1,60,000. Its capital structure consists of the following: 10% Debentures Rs. 500000 12% Preference Shares 1

#ques1. Steve and Ed are cousins who were both born on the same day, and both turned 25 today. Their grandfather began putting $2,500 per year into a trust fund for Steve on his 20

Louis Futon Co. is currently an all-equity firm. The current market value of the company is $80 million. The corporate tax rate is 35%. What is the new value of the company if Loui

Say that a buyer of bonds values good bonds at $500 and values bad bonds at $250. Sellers of both good and bad bonds value them at $350. If the fraction of good sellers and bad s

ROS - Return on Sales (Profit Margin) The Average of the industry ROS was 5.18% for 2004, 4.41% for 2005, and 7.20% for 2006. The chart showed that ROS has been declined f

1. A stock pays no dividend and is expected to be sold for $50 after 4 years. If the investor's RRR is 12%, at what price is he/she willing to buy it? 2. ABC company has its ROE

Bills of Exchange Bills of Exchange are a source of finance in specifically in the export trade. A bill of swapping is an unconditional arrange in writing addressed via one pe

Three of these companies have bonds that carry investment - grade ratings. The other 3 companies carry junk - bond ratings. Judging by the information in the table, which 3 compani