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You have been asked to calculate the WACC for a firm. The firm has short-term debt that has a return of 4.50%. The amount outstanding of the short-term debt is $100 million. The firm also has long-term debt that has a par amount of $300 million, a coupon rate of 6.00%, a maturity of 10 years and a yield to maturity of 6.70%. The firm also has 10 million shares outstanding that is currently trading at $50 per share and has a beta of 1.2. In addition the firm has preferred stock that has 2 million shares outstanding, pays an annual dividend of $5.25 per share. It is trading in the market at $78 per share.
The risk free rate is 2.00%, the risk premium on the market is 6.00% and the firms tax rate is 30%. Assume the bonds are semi annual coupons. What is the WACC of the firm?
EFFECTIVE VERSUS NOMINAL INTEREST RATES: Bank A pays 4% interest compounded annually on deposits, while Bank B pays 3 5% compounded daily. Could your choice of banks be influenced by the fact that you might want to withdraw your funds during the year..
Swan Supply Company has net income of $1,175,200, assets of $10,871,200, and retains 70 percent of its income every year. What is the company’s internal growth rate?
We are evaluating a project that costs $1,180,000, has a ten-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 66,000 units per year. Calculate the best-case an..
You purchase a house that costs $625,000 with a 8%, 30-year mortgage. In order to avoid PMI insurance, you decide to follow a conforming mortgage by making a down payment of 20%. 1. What is your monthly payment? 2. Amortize the first and second payme..
You are planning your retirement in 10 years. You currently have $176,000 in a bond account and $616,000 in a stock account. You plan to add $6,400 per year at the end of each of the next 10 years to your bond account. How much can you withdraw each ..
What is the approximate annual interest rate compounded annually if your money will double in 8 years if it is put in a savings account? Assume you borrow $25,000 at 8% per year interest compounded annually. You pay nothing until the end of 10 years ..
You can relate this discussion to other disciplines. For example, Finance. When you have little money, you consume less of everything... except some products, such as sausages (you must have seen in finance that sausages have negative betas): in bad ..
If the securities market is efficient, an investor need only throw darts at the stock pages to pick securities and be just as well off as they would be with a professionally-developed portfolio.
Mustaine Enterprises, Inc., has been considering the purchase of a new manufacturing facility for $279,000. The facility is to be fully depreciated on a straight-line basis over seven years. It is expected to have no resale value after the seven year..
Eastimating the cost of capital of the firm, should include estimating cost of equity, cost of debt, the market value of equity, market value of debt, and average weighted average cost of capital for apple.
A project produces annual net income of $11,500, $13,700, and $16,900 over the three years of its life, respectively. The initial cost of the project is $257,000. This cost is depreciated straight-line to a zero book value over three years. What is t..
“I promise to lower income tax rates. And I won’t have to cut spending, because the lower rates will induce so much economic activity that tax revenues will rise.” Would this promise be more credible coming from a candidate for U.S. president or a ca..
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