Types of analyses are included in capital budgeting process

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1. Why do organizations need a separate capital budget and what special types of analyses are included in the capital budgeting process?

DuPont’s class B preference share has a price of $75 and an annual dividend of $3.50. Calculate the cost of preference share.

a. The cost for DuPont’s class B preference share is 4.67% per annum.

b. The cost for DuPont’s class B preference share is 26.25% per annum.

c. The cost for DuPont’s class B preference share is 21.43% per annum.

d. The cost for DuPont’s class B preference share is 20% per annum.

2. Pfd Company has debt with a yield to maturity of 7%, a cost of equity of 13% and a cost of preference stock of 9%. The market values of its debt, preference stock and equity are $10 million, $3 million and $15 million, respectively, and its tax rate is 35%. What is this firm’s WACC?

a. The WACC (adjusted for tax) is 9.55%.

b. The WACC (adjusted for tax) is 8.36%.

c. The WACC (adjusted for tax) is 10.50%.

d. The WACC (adjusted for tax) is 10.43%.

Reference no: EM132058743

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