Farhat Wineries: Compute WACC
Not what you're looking for?
Farhat Wineries is a privately held (not publicly traded) firm with the following balance sheet:
Farhat Wineries ($ in millions)
Assets 100 Long-term debt 40
Equity 60
Total 100 Total 100
In addition, you obtain the following information:
? The debt consists of perpetual bonds (they pay interest forever, and never mature) that pay an annual coupon of 10% on their $1,000 face value. Similar publicly traded bonds are currently yielding 8%.
?There are 1 million shares of common stock. Common stock of other publicly traded brewery firms currently has a market-to-book ratio of 2.8, (its market value is 2.8 times its book value) and a beta of 1.2.
?The current yield on 10-year Treasury bonds is 5%, and the expected return on the S&P 500 stock index is 11%.
?The tax rate is 40%.
(a) Compute the weighted average cost of capital.
Purchase this Solution
Solution Summary
Calculates the weighted average cost of capital (WACC).
Solution Preview
The answers are in attached file
Farhat Wineries is a privately held (not publicly traded) firm with the following balance sheet:
Farhat Wineries ($ in millions)
Assets 100 Long-term debt 40
Equity 60
Total 100 Total 100
In addition, you obtain the following information:
? The debt consists of perpetual bonds (they pay interest forever, and never mature) that pay an annual coupon of 10% on their $1,000 face value. Similar publicly traded bonds are currently yielding 8%.
?There are 1 million shares of common stock. ...
Purchase this Solution
Free BrainMass Quizzes
Team Development Strategies
This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.
Marketing Management Philosophies Quiz
A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.
Accounting: Statement of Cash flows
This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.
Business Ethics Awareness Strategy
This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.
Change and Resistance within Organizations
This quiz intended to help students understand change and resistance in organizations