What is the weighted average cost of capital wacc

Assignment Help Finance Basics
Reference no: EM13338021

I. First, here is a good example of a WACC calculation.

Debt Market Value = $100 million

Preferred stock Market Value = $50 million

Common stock Market Value = $350 million

Then the total capital base = $500 million.

Rd = 6% (assume after tax)

Rp = 8%

Re = 11%

Find the weighted average cost of capital (WACC).

II. **SECOND SAMPLE PROBLEM!**

The weight of debt = 30%.

The weight of Preferred stock = 15%

The weight of Common stock = 55%

You are also given the following information:

The market yield to maturity is 11%

The corporate tax rate is 34%

The expected common dividend is $3.00 per share

The price of common stock is $50 per share

The expected growth rate of common stock is 8%

The preferred dividend is $10.00 per share

The price of preferred stock is $98.00 per share

What is the weighted average cost of capital (WACC)?

Reference no: EM13338021

Questions Cloud

What is the implied forward rate for the 3-month : What is the implied forward rate for the 3-month period starting 5 months from now?
What are the common signs of excess leverage : 1. What are the common signs of excess leverage? And alternatively, are there any signs within an organization if the company is not using enough leverage? (And, to add one more follow up question, shouldn't companies actually try to avoid l..
Return characterized by probability distribution given file : Suppose that one of your colleagues has $2000 available to invest.Assume that all of this money must be placed in one of threeinvestments: a particular money market fund, a stock, or gold. Eachdollar your colleague invests in the money market fund ea..
Strategy that maximizestechwares expected net revenue : Techware Incorporated is considering the introduction of two newsoftware products to the market. In particular, the company hasfour options regarding these two proposed products: Techware Incorporated is considering the introduction of two newsoftwar..
What is the weighted average cost of capital wacc : What is the weighted average cost of capital WACC
Maximizes landowners expected net earnings from opportunity : A local energy provider offers a landowner $180,000 for theexploration rights to natural gas on a certain site and the optionfor future development. This option, if exercised, is worth anadditional $1,800,000 to the landowner, but this will occur onl..
Smith earned during the time he held the t-bill : Smith buys a 182-day US T-Bill at a price which corresponds to a quoted annual rate of 182-day T-Bills of 10%. 91 days later smith sells the T-Bill at which time the prevailing quoted annual discount rate of 91-day T-Bills is also 10%. Find th..
What terminal-instrumental values are likely to be important : How would you characterize Jeffery Immelt’spersonality & What terminal and instrumental values are likely to be important to him.
Differentiate between short range planing-long rangeplaning : Differentiate between short range planing and long rangeplaning and also explain the different role of managers.

Reviews

Write a Review

Finance Basics Questions & Answers

  Computations of cash flow

If, at the end of project life, a piece of machine having a book value of $4,000 is expected to bring $3,000 upon resale, and income tax rate is 40 percent,

  What will be the effect on profit of accepting the order

On the one hand they welcome the order because they currently have excess capacity. Also, this is the company's first international order. On the other hand, the company in China is willing to pay only $130 per unit.

  Explain how much additional short-term funding can it borrow

Explain how much additional short-term funding can it borrow before its current ratio standard is reached?

  How long before the savings account be sufficient

The Pebble Creek coach took the funds and invested them in a savings account that earns .4% per month. How long before the savings account be sufficient to buy the new uniforms?

  What level of pretax cost savings

The device has an estimated Year 5 salvage value of $60,000. What level of pretax cost savings do we require for this project to be profitable?

  Acquisitions-verizon wireless

Looking at recent acquisitions of Verizon Wireless, find out two acquisitions to answer the following questions about each acquisition. What is the reason for acquisition that was employed as the logic by your firm in justifying the acquisition? De..

  What is the compunding frequency in this situation

An APR of 5.875 produces an effective annual interest rate of 6.04% what is the compunding frequency in this situation.

  Determine the beta for portfolio

A Sports sales Corporation, the Eisenhower Company in 1956, invested in the stock market the following, Calculate the Beta of this portfolio

  What is the dividend just paid

A share of stock is currently selling for $31.80. If the anticipated constant growth rate for dividends is 6% and investors are seeking a 16% return, what is the dividend just paid?

  Set of pro forma financial statements

If you created a set of pro forma financial statements for 2005 and found that projected Total Assets exceeded projected Total Liabilities and Equity through $11,250, you would know that:

  What should alpha use as an after-tax cost of debt

Alpha has an outstanding bond issue that has a 7.75% semiannual coupon, a current maturity of 20 years, and sells for $967.97. The firm's income tax rate is 40%. What should Alpha use as an after-tax cost of debt for cost of capital purposes?

  What is the equity balance of 2011

If a non for profit organization has a reported equity balance of $1 million on its 2012 balance sheet, a net income of 200,000 and no other adjustments to equity. what is the equity balance of 2011.

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