Common stock-market risk premium and risk-free rate

Assignment Help Financial Management
Reference no: EM13937121

You are given the following information for Watson Power Co. Assume the company’s tax rate is 40 percent. Debt: 5,000 7.8 percent coupon bonds outstanding, $1,000 par value, 20 years to maturity, selling for 107 percent of par; the bonds make semiannual payments. Common stock: 500,000 shares outstanding, selling for $68 per share; the beta is 1.11. Preferred stock: 28,000 shares of 3 percent preferred stock outstanding, currently selling for $88 per share. Market: 9 percent market risk premium and 5.8 percent risk-free rate.

What is the company's WACC?

Reference no: EM13937121

Questions Cloud

What is the equipments after-tax salvage value : After tax salvage value Kennedy Air Services is now in the final year of a project. The equipment originally cost $33 million, of which 75% has been depreciated. Kennedy can sell the used equipment today for $8.25 million, and its tax rate is 35%. Wh..
Division is considering two projects with the cash flows : NPV Your division is considering two projects with the following cash flows (in millions): 0 1 2 3 Project A -$19 $8 $15 $17 Project B -$17 $11 $8 $6 a.What are the projects' NPVs assuming the WACC is 5%?
Discounted payback : Project K costs $70,000, its expected cash inflows are $16,000 per year for 8 years, and its WACC is 13%. What is the project's discounted payback?
What is the per-share value of van buren : Harrison Corporation is interested in acquiring Van Buren Corporation. Assume that the risk-free rate of interest is 3% and the market risk premium is 6%. What is the per-share value of Van Buren to Harrison Corporation?
Common stock-market risk premium and risk-free rate : You are given the following information for Watson Power Co. Assume the company’s tax rate is 40 percent. Debt: 5,000 7.8 percent coupon bonds outstanding, $1,000 par value, 20 years to maturity, selling for 107 percent of par; the bonds make semiann..
Cost of equity capital using arithmetic average growth rate : Suppose Stark Ltd. just issued a dividend of $1.96 per share on its common stock. The company paid dividends of $1.60, $1.70, $1.77, and $1.88 per share in the last four years. If the stock currently sells for $70, what is your best estimate of the c..
What is the companys pretax cost of debt : Drogo, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 10 years to maturity that is quoted at 108 percent of face value. The issue makes semiannual payments and has an embedded cost of 9 percent annually. Wha..
Information effect-expectations theory-clientele effect : JBC Corp. declared a dividend of $2 per share, which was an increase of 25% from the prior year, yet JBC Corp. stock declined by 3% the day of the announcement. RBG Corp. declared a dividend of $2 per share, which was the same as the prior year, and ..
Risk and return-coefficient of variation : Risk and Return, Coefficient of Variation. Based on the following information, calculate the coefficient of variation and select the best investment based on the risk/reward relationship: Std Dev. Exp. Return Company A 10.4 13.2 Company B 7.6 8.7

Reviews

Write a Review

Financial Management Questions & Answers

  Non-depreciating assets

Will-O-Wind Airlines always invests (in non-depreciating assets) 20% of its earnings, which will be next period (Period 1) $3 per share. The rest it pays out as dividends. Its investment opportunities currently earn (and are expected to earn in the i..

  Benchmark for determining projects cost of capital

The corporate cost of capital provides a benchmark for determining a project's cost of capital. In general, projects that are riskier than average must have a cost of capital that is higher than the corporate cost of capital, while projects that are ..

  Explain what positions you would take today with fras

It is January 1. Your firm expects to issue (borrow) three- month Eurodollar time deposits at the beginning of February, May, August, and November in the next year. Explain what position(s) you would take today with FRAs based on three-month LIBOR if..

  What are the similarities between options and warrants

What are the similarities and differences between options and warrants? What variables are important in determining call option prices?

  Registration exemptions under the federal securities laws

For the past three years, Wayne has been the sole owner and CEO of a corp that manufactures and distributes a relatively expensive high-tech baby monitoring device known as "Hear All." The business has grown steadily, and Wayne is convinced that it's..

  Net working capital of the firm

It also had accounts payables of $51,369, short-term notes payables of $11,417, and accrued taxes of $6,145 and the net working capital of the firm

  Calculate return on equity using the du point identity

Calculate the following profitability ratios using the financial statements you looked up: Profit margin, Return on Assets, and Return on equity. Calculate the following Turnover ratios using the financial statements you looked up: Inventory Turnover..

  Which of the two loans would make more money for the bank

As a loan officer, you offer the customer the loan if they agree to pay $19,500 in interest, plus agree to pay the $230,000 back at the end of one year. What is the APR? As an alternative you offer them a one-year, $230,000 discount loan at 9 percent..

  Compute mrtbs annual after tax cost

Compute Mr. TB's annual after tax cost and Mrs. TB's annual after-tax cash ‚if he pays her $4,000 monthly child support and she claims their children as dependents. Compute Mr. TB's annual after tax cost and Mrs. TB's annual after-tax cash ‚if she ac..

  Retirement strategy is to invest

Your retirement strategy is to invest 500 per month in an equity mutual fund and 200 per month in a bond fund. Your retirement date is 30 years from now. The expected return on the stock fund is expected to be 8% and the expected return on the bond f..

  Compute the prospective costs of debt

Vale is the second largest mining company based in Brazil. Although it has recently expanded its operations in Africa, Asia, Latin America, it has not yet entered the North American market

  What is the target stock price in one year

Fly Away, Inc., has balance sheet equity of $6.9 million. At the same time, the income statement shows net income of $855,600. The company paid dividends of $419,244 and has 120,000 shares of stock outstanding. If the benchmark PE ratio is 33, what i..

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