Reference no: EM131426418
A corporation has the following balance sheet (liabilities side)
Current liabilities 2,000
Long-term debt 5,000
Preferred stock 2,000
common stock 8,000
retained earnings 3,000
Currently, the riskless interest rate is 8%; the corporate tax rate is 50%; the current price of a share of common stock is $20; and dividends have been level at $1 per share per year for many years.
Recently, company executives have considered expanding the existing business by acquiring a competitor. To do so, they must caluculate the WACC of the firm and estimate the NPV of the acquisition. Because the acquisition is of the same risk as the firm, the WACC (unlevered equity cost) can be used.
A financial executive has used the following procedure to calculate the WACC. Debt and preferred stock are fixed claims offering a fairly secure constant return, and so their before tax cost is assumed to equal the riskless rate. The dividend yield has held constant at about 5%; so this is used as the cost of new and retained equity. Finally , the balance sheet shows the firm to be composed of 25% debt, 10 % preferred , 55% equity (common plus retained), and 10% current liabilities. Current liabilities are assumed to be costless; therefore the WACC is 4.55%. Comment of this procedure:
|
Create your own work journal of leadership lessons learned
: To create an effective healthcare organization, there must be effective leaders. To be the most effective leader you can be, you must continually be observing and learning new leadership skills and techniques. One way to observe and learn is to ke..
|
|
Project and includes the project scope document
: A part of the project management plan that is the baseline of the scope of a project and includes the project scope document, WBS, and WBS dictionary best defines.
|
|
Various areas of a business organization to collaborate
: 1. What are tradeoffs? Why is careful consideration of trade is-offs important in decision making? 2. Why is it important for the various areas of a business organization to collaborate?
|
|
Find probability that at least 18 calls will be successful
: Find the mean, variance, and standard deviation of the number of successful calls.- Find the probability that at least 18 calls will be successful.
|
|
Estimate the npv of the acquisition
: Finally , the balance sheet shows the firm to be composed of 25% debt, 10 % preferred , 55% equity (common plus retained), and 10% current liabilities. Current liabilities are assumed to be costless; therefore the WACC is 4.55%. Comment of this pr..
|
|
Probability that at least 25 devices will work correctly
: Find the probability that exactly 28 devices will work correctly.- Find the probability that at least 25 devices will work correctly.
|
|
Universal and the contingency leadership theories
: Describe the differences between the universal and the contingency leadership theories. Explain your answer in sufficient detail to demonstrate your understanding.
|
|
Dubrin basic formula for human behavior
: What modifications would you make to DuBrin's basic formula for human behavior to account for why some leaders excel in creative positions and others do not? Present Dubrin's basic formula and describe your proposed modifications.
|
|
Conduct a du pont system analysis
: Conduct the comparative analysis of company financial statement using common size tools (both vertical and percent change analysis). Once comparative analysis is complete discuss where company is performing better /weak in both balance sheet and i..
|