What is its weighted average cost of capital

Assignment Help Financial Management
Reference no: EM131070705

A company has $1 million in debt and $2 million in equity. The interest rate on its debt is 5%, and the required rate of return on its equity is 15%. Its effective tax rate is 30%. What is its weighted average cost of capital (WACC)?

Reference no: EM131070705

Questions Cloud

Expected return and standard deviation of portfolio : The expected return and standard deviation of a portfolio that is 70 percent invested in 3 Doors, Inc., and 30 percent invested in Down Co. are the following: 3 Doors, Inc. Down Co. Expected return, E(R) 17 % 14 % Standard deviation, σ 60 28 What is ..
Considering opening pediatric unit : Assume that you are the CFO of a non-tax paying hospital that is considering opening a pediatric unit. Based on your research, you expected the following: The cost of new equipment for the unit is $4 million. The equipment has a 10 year useful life a..
What are the order costs : Louise Manufacturing uses 2,700 switch assemblies per week and then reorders another 2,700. The relevant carrying cost per switch assembly is $11.00, and the fixed order cost is $1,350. What are the current carrying costs? (Do not round intermediate ..
The inverse of a spread is called reverse spread : An investor believes that there will be a big jump in a stock price, but is uncertain as to the direction. Identify six different strategies (spreads or combinations) the investor can follow and explain the differences among them. You should also con..
What is its weighted average cost of capital : A company has $1 million in debt and $2 million in equity. The interest rate on its debt is 5%, and the required rate of return on its equity is 15%. Its effective tax rate is 30%. What is its weighted average cost of capital (WACC)?
Portfolio expected return-variance and standard deviation : Consider the following information on a portfolio of three stocks: State of Economy Probability of State of Economy Stock A Rate of Return Stock B Rate of Return Stock C Rate of Return Boom .12 .09 .34 .53 Normal .53 .17 .19 .27 Bust .35 .18 –.18 –.3..
Goal is to create portfolio with expected return : You have $18,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 16 percent and Stock Y with an expected return of 11 percent. Assume your goal is to create a portfolio with an expected return of 12.10 percent. Req..
Flotation cost on preferred stock : A company has a capital structure of 45% debt, 5% preferred stock and 50% common equity. The company can obtain unlimited debt at an interest rate of 10%. The marginal tax rate is 35%. Find the after-tax cost of debt. Preferred stock carries a divide..
Cost data concerning the widget machine : The PARC Company, a large profitable corporation, has decided to purchase a new widget machine. The following cost data concerning the widget machine have been provided. First cost = $3,156,000. Salvage value = $119,000. Life = 10 Years. Direct purch..

Reviews

Write a Review

Financial Management Questions & Answers

  Considering new automated cleaning equipment

A company is considering new automated cleaning equipment. The engineer for the company has been asked to calculate the present worth of the proposed alternative. The market value at the end of the five year study period is 12.5% of the initial cost...

  Using the straight-line method

Please show/explain work. Scott Investors, Inc, is considering the purchase of a 412,000 computer with an economic life of 5 years. The computer will be fully depreciated over five years using the straight-line method.

  Retained earnings bank loans dividends paid to stockholders

Which of the following is a source of internally generated equity financing? issuing new corporate bonds issuing new shares of common stock retained earnings bank loans dividends paid to stockholders

  Division was profitable immediately under the new ownership

A major manufacturer decided to put one of its divisions up for sale because managerial information showed the components produced by this division is losing money. A group of employees in the division purchased it. Under the new ownership, the divis..

  What will be the firms operating cycle

Suppose that Dunn Industries has annual sales of $2.5 million, cost of goods sold of $1,850,000, average inventories of $1,900,000, and average accounts receivable of $660,000. Assuming that all of Dunn's sales are on credit, what will be the firm's ..

  What are the yield to maturity ytm

BTR Co. has 9% annual coupon bonds that are callable and have 18 years left until maturity. The bonds have a par value of $1000.00, and their current market price is $1130.35. However, BTR Co. may call the bonds in eight years at a call price of $106..

  Assumptions are implicitly made by the NPV and IRR methods

The conference on evaluating capital projects has been very helpful. You have received a significant amount of information and multiple projects to evaluate to hone your skills. How does a change in the required rate of return affect the project’s in..

  Accountant made adjusting entries at the end of the period

X Company's accountant made adjusting entries at the end of the period for the following reasons: As a result of these entries, total equities decreased by_____

  Advantages-disadvantages of using debt financing

Storm Cellars is the leading manufacturer of wine in North Carolina. Demand for Storm Cellars wine has been growing at an exponential pace. In fact, their wine is being demanded by customers and restaurants across the country. Why might Storm Cellar ..

  What was the average real return on crash-n-burn’s stock

You’ve observed the following returns on Crash-n-Burn Computer’s stock over the past five years: 14 percent, –7 percent, 17 percent, 15 percent, and 10 percent. Suppose the average inflation rate over this period was 1.4 percent and the average T-bil..

  Bond pays an annual coupon

A bond pays an annual coupon of $91 has a face value of $1,000 and has 16 years remaining until maturity. If the current market required rate of return on bonds of this type is 11% what is the market price of the bond? State your answer in dollars an..

  Capital budgeting involves

Capital budgeting involves all of the following steps, except:

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