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Weighted Average Cost of Capital (WACC)

Finance Issues

A few problems related to business finance. Problem Set 3: Ross: Chapter 3 - Problems: 3.2, 3.4 3.2 Cheryl Colby, the CFO of Charming Florist Ltd., has created the firm's pro forma balance sheet for the next fiscal year. Sales are projected to grow at 10 percent to the level of $330 million. Current assets, fixed assets,

Dividend Discount Model and WACC

1. In March 2004, Fly Paper's stock sold for about $73. Security analysts were forecasting a long-term earnings growth rate of 8.5 percent. The company is expected to pay a dividend of $1.68 per share a. Assume dividends are expected to grow along with earnings at g 8.5 percent per year in perpetuity. What rate of return r wer

Changes in Cost and Weighted Average Cost of Capital

WACC or weighted average cost calculation 20. Carr Auto Parts is trying to calculate its cost of capital for use in a capital budgeting decision. Mr. Horn, the vice-president of finance, has given you the following information and has asked you to compute the weighted average cost of capital. The company currently has outsta

WACC Problem

Please show formulas and solution on how to complete this one. Thanks A company's balance sheets show a total of $30 million long-term debt with a coupon rate of 9 percent. The yield to maturity on this debt is 11.11 percent, and the debt has a total current market value of $25 million. The balance sheets also show th

Alpha Signmaking - WACC, RR, NPV Calculations

Alpha Signmaking, the leading producer of laminated sign making equipment, spent 2 years and $3 million dollars developing a new semiautomatic signmaker. In 1988, the company was ready to make a decision about placing the new signmaker into production. This signmaker would fill the gap between a manual unit selling for $1,000

WACC and Hurdle rates

What is the relationship between hurdle rate and Weighted Average Cost of Capital (WACC)? Which type of risk is more difficult to minimize: systematic or unsystematic? Why? Given the choice, being a small business owner, having experienced success in the local market, and wishing to expand company operations on a greater s

WACC: Capital Structure and Equity

On January 1, the total market value of the Tysseland Company was $60 million. During the year, the company plans to raise and invest $30 million in new projects. The firm's present market value capital structure, shown below, is considered to be optimal. Assume that there is no short-term debt. Debt $30,00


Calculate the WACC for a firm with a debt-equity ratio of 1.5. The debt pays 6% interest and the equity is expected to return 8%. Assume a 35% tax rate and risk-free debt.

Weighted average cost of capital

The CEO needs you to calculate the company's weighted-average cost of capital (WACC). In addition to calculating the WACC, the CEO wants you to explain how the capital structure would need to change if the firm wanted to reduce its cost of capital. The CEO believes the company needs a split of 25% debt to 75% equity to have an o

WACC and optimal capital structure

Elliott Athletics is trying to determine its optimal capital structure, which now consists of only debt and common equity. The firm does not currently use preferred stock in its capital structure, and it does not plan to do so in the future. To estimate how much its debt would cost at different debt levels, the company's treasur

Multiple choice questions in Corporate Finance

12. The Horizon Company will invest $60,000 in a temporary project that will generate the following cash inflows for the next three years. Year Cash Flow 1. . . . . . . . . $15,000 2. . . . . . . . . 25,000 3. . . . . . . . . 40,000 The firm will also be required to spend $10,000 to close down the project at the end o

Weighted Average

(See attached file for full problem description with diagrams) --- 1. Wilson & Associates capital structure is as follows: The after-tax cost of debt is 6.5%; the cost of preferred stock is 10%; and the cost of common equity (in the form of retained earnings) is 13.5%. Calculate the weighted average cost of capital

Corporation Valuation

Please help with the following: Brook's Enterprises has never paid a dividend. Free cash flow is projected to be $80,000 and $100,000 for the next 2 years, respectively, and after the second year it is expected to grow at a constant rate of 8%. The company's weighted average cost of capital is WACC= 12% a) What is the te

Finance - Set 3, Prob #4

What is the weighted average cost of capital for a firm in the 35% corporate tax bracket, with the following: Financing Amount Rate of Interest for each. Equity $ 1,150,000 11.57% Debt $

Weighter average cost of Capital

WACC= (wd)(rd)(1-Tc)+(We)(re)+(Wp)(rp) Wd = weight of debt in a firm's capital structure rd = rate being paid for the firm's use of debt monies (marginal cost) Tc = corporate tax rate We = weight of equity re = rate of equity (sometimes calculated in CAPM) Wp = weight of preferred rp = rate being paid on preferred stock


I'm confused on this problem. I know you are supposed to get the cost(aftertax), multiply by the weight to get the weighted cost. Then add the weighted costs to arrive at the weighted average cost of capital. Smith and Jones Widget Company has total capital, consisting of long-term debt and common equity of $80 million. Thirt


The corporation has no debt but can borrow at 7%. The firms WACC is currently 10% with no corporate tax. 1. So what's the cost of equity? 2. Whats the cost of equity at 30% or 60% and what's the WACC? Thanks for the help!

Short Financial Management Case Study: Cost of Capital

There are only 3 questions with this case study. Please answer each question fully and completely showing all computations and support for your conclusions. Please be as in-depth as possible. (See attached file for full problem description)

Cost of Capital

MUST BE IN EXCEL FORMAT AND MUST SHOW ALL WORK Ramsey Data Systems is a large company with common stock listed on the New York Stock Exchange and bonds traded over-the counter. AS of the current blance sheet, it has three bond issues outstanding: Expiration $50 million of 9% s

WACC problem

What is the WACC for Lee Family Firms? Attatched is an excel template of the company information if you scroll all the way over. It has two projects: Francis Lightfoot and Richard Henry. The problem is #13 and the answer to the problem is 3.89%.

Weighted Average Cost of Capital

The weighted average cost of capital (WACC) reflects, on the average, the firm's cost of long-term financing. Given the costs of the specific sources of financing, how would you obtain the appropriate weights for use in calculating a firm's WACC? Spend a few moments considering this question

Calculate the post tax WACC (for two scenarios)

You will find the answer to this puzzling assignment inside... 1. Yield on company's preferred stock - 8% 2. Yield on company's debt - 10% 3. Required return on common stock and internal equity - 12% 4. Debt total - $5,000,000 5. Preferred stock current market value - $10,000,000 6. Common stock and retained earnings tot

Cost of Capital problem

See *ATTACHED* file for complete details! This is a problem with many parts. The file is attached. I don't understand the problem. The section of the questions I need help with are #9-14. The other information that is needed for the problem is on the side bar. The answers are: 9. 36.43% 10. 5.03% 11. 12.50% 12

WACC problem

What is Wilson's Automotive Car Care's WACC if the cost of debt is 14%, the cost of equity is 26%, and it is 46% financed by debt (taxes are 7%)? Please use the equation WACC = [d/v x (1-tc)rdebt] + [e/v x requity] 1. How do you find the security of proportion of the firm's market value? 2. How do you find the required

Answer question 1 and question #2(a,b)

1.Suppose a firm estimates its cost of capital for the coming year to be 10 percent. What are reasonable costs of capital for evaluating average-risk projects, high-risk projects, and low-risk projects? Assignment: Weighted Average Cost of Capital 2. The following tabulation gives earnings per share figures for the Foust

Calculate the WACC

I need to know how to calculate the market value in order to calculate the WACC. PROBLEM 8% bonds that mature in 20 years $8000000 Ordinary shares $5000000 6% preference shares $ 2000000 The market value of bonds is currently $8440000 Shares currently quoted as $0.60 I believe the market value of bonds is the stat

Finance Questions

1. Describe some situations where the weighted-average cost of capital (WACC) would be an inappropriate discount rate in the NPV calculation.? 2. What are some of the pitfalls in forecasting cash flow for a project? 3. How do you compensate for risk in the NPV calculation 4. What are some methods for hedging exchang