User Account

All Pages

Compute the firm weighted average cost of capital

Assignment Help Finance Basics
Reference no: EM131750197

Question: A firm has the following balance-sheet figures:

Debt                                                      $64,000,000

Equity:

    7,500,000 shares at $6 each                  $45,000,000

    Retained earnings                                 $81,000,000

Given the substantial fall in interest rates in recent years, the firm's debt currently has a market price of $75,000,000. The common shares are trading at $38 each. New debt can currently be issued at an after-tax cost of kb = 6%, and the cost of new equity is estimated at ke = 1 4%. Issuing and underwriting expenses can be ignored.

(a) Compute the firm's weighted average cost of capital using both book- and market-value proportions.

(b) Assume that the firm raised an additional $90,000,000 using market-value proportions. What would its book-value proportions be after such new financing?

(c) Assume that the firm raised the additional $90,000,000 using book-value proportions. What would its market-value proportions be after the new financing?

(d) Briefly explain your findings.

Reference no: EM131750197

Questions Cloud

Start time to ensure that there is sufficient coverage : The owners must find the right number of staff to report at each start time to ensure that there is sufficient coverage.
Based on the health service organization you currently work : Based on the health service organization you currently work in or an area of work you are interested in, chose and explore one of the CMS quality initiatives
Emporium manufactures two unique birdfeeders : A.J.'s Wildlife Emporium manufactures two unique birdfeeders? (Deluxe and Super? Duper) that are manufactured and assembled in up to three different workstation
Why were the employees discharged : What must the employees demonstrate to establish a breach of the duty of fair representation? How would that affect the decision of the arbitration board?
Compute the firm weighted average cost of capital : Given the substantial fall in interest rates in recent years, the firm's debt currently has a market price of $75,000,000. The common shares are trading at $38.
Prepare journal entries to record the transactions : Prepare journal entries to record the transactions for January and post them to the ledger accounts
Contrast the two different versions of tracers : compare and contrast the two different versions of tracers that The Joint Commission uses, be sure to include an example in your description.
Real rate of return or the real interest rate : (1) How much will John receive in total this year? This is the total payment in today's dollar.
The predictors of job performance : Provide the predictors of job performance witth definitions and their strengths/weaknesses) for the following

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

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!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +91-977-207-8620

Phone: +91-977-207-8620

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

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