Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The common stock and debt of Windows Phone Corp. are valued at $ 7 9 million and $ 2 1 million, respectively. Investors currently require

The common stock and debt of Windows Phone Corp. are valued at $79 million and $21 million, respectively. Investors currently require a 20% return on the common stock and an 9% return on the debt. There are no taxes.
Calculate the weighted average cost of capital. Enter your answer as a percentage. Do not include the percentage sign in your answers. Enter your answer rounded to 2 DECIMAL PLACES.
WACC=
Correct response: 17.69+-0.02
Click "Verify" to proceed to the next part of the question. This question has 3 parts, so you will be clicking verify 3 times.
Suppose Windows Phone Corp. had an additional $9 million of debt and had $9 million less of common stock, what would be the expected return on the stock? Assume that the change in capital structure would not affect the risk of the debt, and recall that the WACC under the initial capilal structure is 17.69%. Enter your answer as a percentage. Do not include the percentage sign in your answer. Enter your answer rounded to 2 DECIMAL PLACES.
rE=
correct response: 21.410.02
Click "Verify" to proceed to the next part of the question.
Suppose you would like to be able to invest in the firm if they had the capital structure above with a 21.41% retum on the common stock and a WACC of 17.69%. If you have $3,000 to invest, how much should you invest in the stock and bonds of the original firm (which have returns of 20% and 9%, respectively) to obtain the same return as an investment in the stock of the firm if it had $30 million of debt and $70 million of equity? Enter your answers rounded to 2 DECIMAL PLACES.
Amount into equity =
Amount into debt =
image text in transcribed

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

Investments An Introduction

Authors: Herbert B. Mayo

13th Edition

0357127951, 978-0357127957

More Books

Students also viewed these Finance questions

Question

How is the education level required for a position established?

Answered: 1 week ago

Question

Why is a job analysis important?

Answered: 1 week ago