What is the company weighted average cost of capital

Assignment Help Financial Management

Reference no: EM131617173

A firm is considering an investment in a new machine with a price of $15.6 million to replace its existing machine. The current machine has a book value of $5.4 million and a market value of $4.1 million. The new machine is expected to have a four-year life, and the old machine has four years left in which it can be used. If the firm replaces the old machine with the new machine, it expects to save $6.3 million in operating costs each year over the next four years. Both machines will have no salvage value in four years. If the firm purchases the new machine, it will also need an investment of $250,000 in net working capital. The required return on the investment is 10 percent, and the tax rate is 39 percent.

1) What are the NPV and IRR of the decision to replace the old machine?

If Wild Widgets, Inc., were an all-equity company, it would have a beta of .95. The company has a target debt–equity ratio of .40. The expected return on the market portfolio is 11 percent, and Treasury bills currently yield 4 percent. The company has one bond issue outstanding that matures in 20 years and has a coupon rate of 6.5 percent. The bond currently sells for $1,080. The corporate tax rate is 34 percent.

2) What is the company’s cost of debt?

3) What is the company’s cost of equity?

4) What is the company’s weighted average cost of capital?

Reference no: EM131617173

Questions Cloud

What will the value of the firm be if company takes on debt : What will the value of the firm be if the company takes on debt equal to 60 percent of its unlevered value?

Considering new three-year expansion project : Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $3 million.

What would the equity accounts be after stock dividend : What would be the number of shares outstanding, after the distribution of the stock dividend? What would the equity accounts be after the stock dividend?

What is the most expensive car you can aforrd : What is the most expensive car you can aforrd if you finance is for 48 months?

What is the company weighted average cost of capital : What is the company’s cost of equity? What is the company’s weighted average cost of capital?

What is the stock price three years from now : A stock just paid a dividend of $1. The required rate of return is rs = 12%, and the constant growth rate is 6%. What is the stock price three years from now?

Financial consultant offers you pension product : Financial consultant offers you pension product that allow you to invest to your retiremnet savings of 300,000$ in deposit that pays 4% per annum.

Higher effective interest rate paid by the borrower : Which loan will result in a higher effective interest rate paid by the borrower?

Define the shareholder cash flow : FCOJ, Inc., a prominent consumer products firm, is debating whether or not to convert its all-equity capital structure to one that is 35 percent debt.

User Account

All Pages