Compute the wacc for the company

Assignment Help Finance Basics
Reference no: EM131340934

ou try to evaluate an investment project for a company. A firm uses $38 million of debt and $15 million of preferred stock. The current market price of common stock is $20 with 4,125,000 shares outstanding, which it has used recently to finance in a number of its recent operating asset purchases. If the before-tax cost of debt is 8% and its cost of preferred stock is 10%. The risk free rate is assume to be 5%, while the market risk premium is 8%, with an above market level firm beta of 1.25 (slightly more volatile than the market). Assume the corporate tax rate for this firm is 35%.

Based on the information given, compute the WACC for the company.

If an investment project generates a return of 11% and has similar risk level as the overall company, would you accept this project? Why or why not?

Reference no: EM131340934

Questions Cloud

Correlation and diversification : Sharpe's Capital Asset Pricing Model relates to Harry Markowitz's original and still Modern Portfolio Theory (MPT), including correlation and diversification.
How is performance evaluation conducted where you work : Discussion board question: How is performance evaluation conducted where you work or previously worked? Is it a performance appraisal, or is there performance management?
Determine the costs to be capitalised : Autocar Inc, a motor vehicle manufacturer, has a research division that worked on the following projects during 2004:- Determine the costs to be capitalised.
What themes or ideas are supposed to be expressed : PHL 255:Choose three chapters from the Tao Te Ching which interest you and write an essay in which you analyze the meaning of the verses and explain how they reflect Taoist teachings like Tao, yin, yang, zhenren, ming, chi, tzu jan, and wu wei.
Compute the wacc for the company : Based on the information given, compute the WACC for the company. If an investment project generates a return of 11% and has similar risk level as the overall company, would you accept this project? Why or why not?
Suggest a method for consolidating core network services : Explain the key considerations behind establishing trust relationships between the two domains. Suggest a method for consolidating Core Network services..
Write a program that reads a string from the console : Write a program that reads a string from the console and replaces every sequence of identical letters in it with a single letter (the repeating letter). Example: "aaaaabbbbbcdddeeeedssaa" à "abcdedsa".
What is the undepreciated cost of capital : Given initial investment of $500,000, project life of 5 years, salvage of $50,000, CCA rate of 20%, tax rate of 40%, and required return of 15%, what is the undepreciated cost of capital at the end of Year 3? Remember to use the half-year rule
Why was socialism considered a radical ideology : In what ways was the Progressive Era (1906-20) truly "progressive" or not; and the "New Deal" (1933-38) really "new" or not, especially in regards to the health, safety and daily lives of U.S. workers and consumers?

Reviews

Write a Review

Finance Basics Questions & Answers

  Methods of evaluating marketing programs

Question 1: Three commonly used methods of evaluating marketing programs are marketing metrics, marketing dashboards, and marginal analysis.

  What is this firm after-tax marr

The state income tax rate is 3%, and the federal income tax rate is 34%. State income taxes are deductible from federal taxable income. What is this firm's after-tax MARR? (Enter your answer as a percent without the percent sign.)

  A company has 100000 invested in a 2 stock portfolio 35000

a company has 100000 invested in a 2 stock portfolio. 35000 is invested in stock a and the remaining is invested in

  Security risk the systematic risk principle states that the

security risk the systematic risk principle states thata. systematic risk doesnt matter to investorsb. systematic risk

  Discuss the key issues relating to international context

Discuss the key issues relating to international context for financial regulation (I want to discuss about the international regulators, i.e. who are they or who the different regulators are? How do they affect the UK financial services?

  Cross-rates and arbitrage the japanese yen exchange rate is

cross-rates and arbitrage the japanese yen exchange rate is yen961 and the british pound exchange rate is pound11.72.

  Your bank account pays a 6 nominal rate of interest the

your bank account pays a 6 nominal rate of interest. the interest is compounded quarterly. which of the following

  What is free cash flow if you were an investor why might

what is free cash flow? if you were an investor why might you be more interested in free cash flow than net

  What does a swot analysis of netflix reveal

What does a SWOT analysis of Netflix reveal about the overall attractiveness of its situation?

  The dividend is expected tp grow forever at a constant

woidtke manuffacturings stock currently sells for 20 a share. the stock just paid a dividend of 1.00 a share ad the

  What price per bond should suresafe be able

It estimates that, in current market conditions, the bonds should provide a (nominal annual) return of 14 percent. What price per bond should Suresafe be able to realize on the sale?

  What risks do you foresee in purchasing this property

What risks do you foresee in purchasing this property? What measures would you take to manage these risks? Will these risks affect the price that you would offer? If so, how would they affect your pricing decision? If not, what factors would contr..

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