Sports Corp has 11.5 million shares of common stock outstanding, 6.5 million sha

Question

Sports Corp has 11.5 million shares of common stock outstanding, 6.5 million shares of preferred stock outstanding, and 2.5 million bonds. If the common shares are selling for $26.5 per share, the preferred share are selling for $14.0 per share, and the bonds are selling for 96.85 percent of par, what would be the weight used for equity in the computation of Sports's WACC?

12.13%

2. Compute the Discounted Payback statistic for Project X and recommend whether the firm should accept or reject the project with the cash flows shown below if the appropriate cost of capital is 10 percent and the maximum allowable discounted payback is 3 years.

56.10% 10.82% 33.33%

12.13%

2. Compute the Discounted Payback statistic for Project X and recommend whether the firm should accept or reject the project with the cash flows shown below if the appropriate cost of capital is 10 percent and the maximum allowable discounted payback is 3 years.

  Time: 0 1 2 3 4 5   Cash flow: -1,000 450 530 450 350 200 2.45 years, accept 2.83 years, accept 4.83 years, reject 3.45 years, reject

Explanation / Answer

We need to calculate the cumulative net cash flow for each period and then use the following formula for payback period = A + [B/C]

A is the last period with a negative cumulative cash flow;
B is the absolute value of cumulative cash flow at the end of the period A;
C is the total cash flow during the period after A

DPB = 2 + [|152.89| / 338.09]

DPB = 2.45 years and we can accept it as it is less than 3 years.

I hope my solution solves your query.

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