Explore BrainMass
Share

Explore BrainMass

    Nevada Hydro

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Nevada Hydro is 40 percent debt-financed and has a weighted-average cost of capital of 9.7 percent:

    Banker's Tryst Company is advising Nevada Hydro to issue $75 million of preferred stock at a dividend yield of 9 percent. The proceeds would be used to repurchase and retire common stock. The preferred issue would account for 10 percent of the preissue market value of the firm. Banker's Tryst argues that these transactions would reduce Nevada Hydro's WACC to 9.4 percent:

    Do you agree with this calculation? Explain

    © BrainMass Inc. brainmass.com October 9, 2019, 10:35 pm ad1c9bdddf
    https://brainmass.com/business/weighted-average-cost-of-capital/nevada-hydro-weighted-average-cost-capital-225486

    Attachments

    Solution Preview

    Nevada Hydro is 40 percent debt-financed and has a weighted-average cost of capital of 9.7 percent:

    Banker's Tryst Company is advising Nevada Hydro to issue $75 million of preferred stock at a dividend yield of 9 percent. The proceeds would be used to repurchase and retire common stock. ...

    Solution Summary

    This solution is comprised of a detailed explanation to answer if we agree with the calculation.

    $2.19