Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The companys financial analyst has advised Healthy Options to use the weighted average cost of capital as the appropriate discount rate to evaluate the project.

The companys financial analyst has advised Healthy Options to use the weighted average cost of capital as the appropriate discount rate to evaluate the project. Information about the companys sources of financing is provided below: The company will contract a new loan in the sum of $2,000,000 that is secured by machinery and the loan has an interest rate of 6 percent. Healthy Options has also issued 4,000 new bond issues with an 8 percent coupon, paid semiannually, and which matures in 10 years. The bonds were sold at par, and incurred floatation cost of 2 percent per issue. The companys preferred stock pays an annual dividend of 4.5 percent and is currently selling for $60, and there are 100,000 shares outstanding. There are 300,000 million shares of common stock outstanding, and they are currently selling for $21 each. The beta on these shares is 0.95.

1. Determine the weighted average cost of capital (WACC) for Healthy Options. (9 marks)

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

Step: 3

blur-text-image

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

How To Make Money With Junk Bonds

Authors: Robert Levine

1st Edition

007179381X,0071793828

More Books

Students also viewed these Finance questions

Question

5 The organization must also never stop looking for fresh ideas.

Answered: 1 week ago