Calculate the net present value with the wacc

Assignment Help Finance Basics
Reference no: EM13879758

1.Ember is considering an investment of $40 million in plant and machinery. This is expected to produce free cash flows of $13 million in year 1, $14 million in year 2, $15 million in year 3, and 25 million in year 4. The tax rate is 35%. You don't know the target capital structure, but you do have the following information:

· Bonds: There are 37,000 bonds with a 5.5% coupon outstanding. The coupons are paid annually. The bonds have a 1000 face value and 8 years to maturity. They sell for 96.7% of par.

·Retained Earnings (Internal Equity): There are 950,000 shares outstanding with a price of $55 per share. The beta on the stock is 1.25. The risk-free rate is 2% and the market risk premium is 6%.

a) Calculate the weighted average cost of capital. Hint: To get the weights, you will need to solve for the market value of the debt and equity.

b) Calculate the net present value (NPV) with the WACC.

Should they invest? Why or why not?

Reference no: EM13879758

Questions Cloud

Describe why they are relevant across industries : Given the readings in Module 10 and 11, how should a Middle Eastern company evaluate the success of a strategic alliance? Identify relevant criteria and discuss your reasons for including them. Describe why they are relevant across industries, cul..
The risk per unit of return is measured by the : The risk per unit of return is measured by the
The transaction is called going public : When stock in a closely held corporation is offered to the public for the first time, the transaction is called “going public,” and the market for such stock is called the new issue market. It is possible for a firm to go public and yet not raise any..
How much initial capital will be required to start business : What will it cost you to produce and how much initial capital will be required to start the business? How long will it take you to break even?
Calculate the net present value with the wacc : Calculate the net present value (NPV) with the WACC
Compute dow''s basic and diluted earnings per share : In 2013, Merrill's net income was $630,000.
What would be net present value of refunding for bond issuer : Given the information given, what would be the Net Present Value of Refunding for the bond issuer? Show all your calculations. Should the firm proceed with refunding the bonds?
Do employees actions always reflect ethics of the company : Also, if the employee is not an ethical person, the culture of the company will not be conducive for ethics regardless of the situation the outcome is usually the same. Which makes me wonder... do employees' actions always reflect the ethics of th..
Career planning practices in the local and global contexts : Identify the career interventions that you consider will benefit you most in relation to your career. Identify and discuss which interventions will benefit you most at different stages in your career. Analyze why.

Reviews

Write a Review

Finance Basics Questions & Answers

  Letter regarding the developing my business plan

Write a 350 to 700 word response to the following e-mail:

  Use excel to determine the number of each type of person

Can someone please walk me thru Excel on this one? Or is there a way to solve this manually? Not too keen on Excel so I can use as much help as possible.

  Defining components of cash conversion cycle

State cash conversion cycle and describe the components of it in detail.

  Provide examples of fixed and variable costs

Provide some examples of fixed and variable costs from your workplace determine which costs may have both variable and fixed components.

  State laws governing businesses

It can be dry reading and is often a bit difficult to understand, but it is good to be aware of the state laws governing businesses in your state. Go to the Secretary of State website for the state your company is (or is to be) formed.

  Under what circumstances would it be appropriate for a firm

under what circumstances would it be appropriate for a firm to use different costs of capital for its different

  Calculate the variance and the standard deviation

A portfolio is made up of 75 percent of stock 1, and 25 percent of stock 2. Stock 1 has a variance of .08, and stock two has a variance of .035. The covariance between the stocks is -.001.

  What was the capital gain yield

Each bond originally sold at its $1,000 par value. What was the yield to maturity of these bonds when they were issued?

  What steps have countries taken to support the exchange rate

What steps have countries taken to support the exchange rate of their currency against foreign currencies?

  Determine stock value

Garrett Corporation has been going through a difficult financial period. Over the past three year, its stock price has dropped from $50 to $18 per share. Throughout this downturn, Garrett has managed to pay a $1 dividend every year.

  Discuss the importance of the time value of money concept

discuss the importance of the time value of money concept and why cash flow in the future is worth less than the same

  Evaluate expected return

Evaluate its expected return and at the same time you notice that another stock has an expected return of 20%, but the beta is unknown

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd