Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

no excel working Question #1 Viduka Constructions CFO wants to estimate the companys WACC. She has collected the following information: The company currently has 20-year

no excel working

Question #1 Viduka Constructions CFO wants to estimate the companys WACC. She has collected the following information: The company currently has 20-year bonds outstanding. The bonds have an 8.5 percent annual coupon, a face value of $1,000, and they currently sell for $954.32. The companys stock has a beta = 1.20. The market risk premium, kM kRF, equals 5 percent. The risk-free rate is 6 percent. The company has outstanding preferred stock that pays a $2.00 annual dividend. The preferred stock sells for $25 a share. The companys tax rate is 40 percent. The companys capital structure consists of 40 percent long-term debt, 40 percent common stock, and 20 percent preferred stock. What is the companys WACC?

Question #2. (a) Your firm has $ 70 million in long term debt and $ 30 million in equity in its capital structure. The corporate tax rate is 25%, interest rates are 8% per annum, and the cost of equity is 11%. What is the WACC rate? (b) If the tax rate in (i) above was 0%, what would be the WACC rate? (c) If the firm changed its capital structure to 80% debt and 20% equity, resulting in interest rates increasing to 8.25% and the cost of equity to 11.5%, what would be the WACC rate? (Assume a tax rate of 0%)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Day Trading Cardinal Rules For Passive Income

Authors: Brian Stclair

1st Edition

1539480313, 978-1539480310

More Books

Students also viewed these Finance questions