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Average weighted cost of capital..

1. Calculate the average weighted cost of capital for a firm having the following financial statistics (expressed in dollars)-show calculations.

Term loans 22,400,000
Outstanding bonds 111,200,000
Common Stock @ Book 800,000
Common Stock @ Market 56,800,000
Preferred Stock @ Book ` 3,200,000
Preferred Stock @ Market 3,200,000
Outstanding Revolver Loans 6,400,000
Annual Interest 12,000,000
Annual Dividends 8,000,000
Tax Rate 50%
EPS $7.00/share

2.Calculate the NPV and payback period for the purchase of new production equipment, costing $1,000,000, to replace existing fully depriiated equipment. The new equipment has a five year life. The new equipment will produce an estimated $400,000 annual incremental increase in income over continuing with the existing equipment. The tax rate is fifty percent (50%). Assume straight-line, with $0 salvage value at end of the estimated 5-year life of the equipment. Assume a discount rate of 8.0%.

Also indicate if the propse purchase should proceed, based upon the available information; noting any qualifiers to your position.

Solution Preview

Calculate the average weighted cost of capital for a firm having the following financial statistics (expressed in dollars)-show calculations.

Term loans 22,400,000
Outstanding bonds 111,200,000
Common Stock @ Book 800,000
Common Stock @ Market 56,800,000
Preferred ...

Solution Summary

This explains the computation of average weighted cost of capital..

$2.19