Summary: Prepare your detailed solutions to seven questions below in MS Word fil

Question

Summary: Prepare your detailed solutions to seven questions below in MS Word file and upload it by 25 July: 1. Company has the following capital structure. Its corporate tax rate is 35%. What is its WACC? Security Market Value Required Rate of Return Debt $20 million 6% Preferred stock 10 milion Common stock 50 million 12 2. Here is some information about Company: Beta of common stock 1.2 Treasury bill rate 4% Market risk premium 7.5% Yield to maturity on long-term debt-6% Book value of equity $440 million Market value of equity $880 million Long-term debt outstanding $880 million Corporate tax rate-35% What is the company's WACC?

Explanation / Answer

1.

WACC = 9.475%

2.

Cost of equity = 4% + 1.2*7.5% = 13%

WACC = 8.45%

Amount weight cost weight*cost equity                              50.00 0.6250 12.0000% 0.0750 debt                              20.00 0.2500 3.9000% 0.0098 preferred shares                              10.00 0.1250 8.0000% 0.0100

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.