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Weighted Average Cost of Capital (WACC)

The Cost of Capital- Joe the bartender

My good old pal Joe the bartender called me into his place the other day with what he thought was a great riddle for me. He told me that if I get it right, he will send a case of fresh orange juice to me. He said two mutually exclusive projects are being considered. First, a short-term project might have a higher ranking under t

This is a finance problem.

Cape Cod Enterprises Inc. has a capital structure consisting of $30 million in long-term debt and $20 million in common equity. There is no preferred stock outstanding. The interest rate paid on the long-term debt is 12%. Cape Cod is in the 30% tax bracket. On the common equity (stock), the Company pays an annual dividend


If a firm is financed solely by equity is considering issuing debt and using proceeds to repurchase some of the outstanding shares at the current market price of $34.61. There are currently 195,000 shares outstanding. EBIT is expected to remain at $1.1 million, with all earnings paid out as dividends. The firm can issue debt

Weighted Average Cost

On May 1, XYZ Company had a work-in-process inventory of 10,000 units. The units were 100% complete for material and 30% complete for conversion, with respective costs of $30,000 and $1,850. During the month, 150,000 units were completed and transferred to finished goods. The May 31 ending work-in-process inventory consisted

WACC: Should Your Firm Proceed with the Investment?

Your firm has just developed a new handheld PDA, code-named the Model A. To produce Model A, the firm would need to invest $20 million in new plant and equipment. The firm would sell Model A for a per unit profit of $200. Sales are expected to be 30,000 units in year 1, 40,000 in year 2, and 50,000 in year 3. Net working capita

Discounting unlevered cash flows, cost of debt, WACC

1. Discounting the unlevered after tax cash flows by the __________ minus the ________ yield the __________. a. cost of capital for the unlevered firm; initial investment; adjusted prevent value. b. Cost of equity capital; initial investment; project NPV. c. Weighted cost of capital; fractional equity investment; project NPV.

WACC/Dividend payment/Financial Leverage

1. Calculate the Weighted Average Cost of Capital for the following scenario. Johnson enterprise has a capital structure of 50% bonds, 30% preferred stock, and 20% common equity stock. Their corporate tax rate is 35%. They pay the bond holders 12%. They pay the preferred stock holders 7%. The common stock holders receive 18%. C

Business valuation analysis of the Cheesecake Factory: DCF, FCF, WACC, TV

I do need a financial valuation for the Cheesecake Factory. This is a valuation analysis of the Cheesecake Factory. I do need the: DCF = discount cash flow FCF= free cash flow generated from 2010 until 2015 WACC = weight average cost capital TV = Terminal value on year 2015 The growth rate of Cheesecake factory

Berkshire Instruments: Cost of Capital

To be honest, I don't even know where to start with this problem and would appreciate any help that you feel is allowed. At least something that could get me started and allow me to check my work when finish. Thank you for your help. Please see attachment for the entire problem I need help with... Berkshire Instrument

Cost of capital

Compute Overall WACC, Compute WACC for the three divisions of the company. The Year is 1988. The VP of project management is preparing his annual recommendations for hurdle rates for each of the 3 firms divisions. Investment projects are selected by discounting the appropriate cash flows by the appropriate hurdle rate for eac

Finance question

Fishy Business is a designer and manufacturer of fishing equipment, is contemplating a $300,000 investment into a new production facility. The economic life of the facility is estimated to be five years, after which the facility will be obsolete and have no salvage value. To make the new facility operational, building impr

Locating an Automobile Plant

See attached file. China is a manufacturing superpower. Assume that you are CFO of an automobile manufacturer looking to build a $U.S.800 million plant in China. You are discussing this project with your spouse, who is intelligent, but has no background in finance. 1. Your discussion should begin with a clear and logic

Weighted Average Cost of Capital (WACC)

Weighted Average Cost of Capital (WACC) Jenny, the financial vice-president of Leonus Corporation, has been given the task of determining Leonus's WACC. The WACC will be used as the discount rate on capital budgeting projects to find the net present value of the projects. Leonus currently has a bond issue outstanding that Je

Zhdanov Inc. Cash Flow Forecast: What is WACC and Firm's Value?

5. Zhdanov Inc. forecasts that its free cash flow in the coming year, i.e., at t = 1, will be -$10 million, but its FCF at t = 2 will be $20 million. After Year 2, FCF is expected to grow at a constant rate of 4% forever. If the weighted average cost of capital is 14%, what is the firm's value of operations, in millions? a

Divisional Cost of Capital for Diageo's investments

See attached file. 1. Diageo subtracts the value of its portfolio of short-term investments, which is held outside the United States and is not required to support day-to-day operations, from its total debt when calculating its "net debt ratio." Use Diageo's net debt ratio to calculate Diageo's overall WACC. 2. Should Diag

Calculation of Firm's Weighted Average Cost

A firm has determined its optimal capital structure, which is composed of the following sources and target market value proportions: Source of Capital Target Market Proportions Long-term debt 30% Preferred stock 5 Common stock equiTY 65 Debt: The before-tax cost of debt is 9.33%. Preferred S

Calculate Cash Flows, WACC, IRR & Payback Period

Here is the company's balance sheet: Assets: Cash- $2,000,000 Accts. Receivable- $28,000,000 Inventories- $42,000,000 Net Fixed Assets- $133,000,000 Total Assets- $205,000,000 Liabilities: Accts. Payable- $18,000,000 Notes Payable- $40,000,000 Long-Term Debt- $60,000,000 Preferred St

WACC (A company has three debt issues outstanding...)

A company has three debt issues outstanding: 1. 7.5% Notes maturing Dec 31, 2018 ($200 million face value), market price $953.75 2. 8% Bonds maturing Dec 31, 2023 ($300 million face value), market price $980.25 3. 8.5% Bonds maturing Dec 31, 2027 ($300 million face value), market price $1,019.71. Use 6.5% risk-free rate and

Issued Preferred Stock or Warrants Including the WACC

You answer the following question: If the firm issued preferred stock or warrants would it include these in the calculation of its WACC? Your answer The firm that issued preferred stock or warrants would only include preferred stock in the calculation of its WACC. Preferred stock has a fixed dividend paid every period fore

Corporate valuation

I need help checking my homework. I am a little confused and need to see if I am heading in the right direction. Thank you Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. ____ 1. Suppose a company's most recent free cash flow (FCF) (i.e., yesterday's fr

ABC wishes to estimate its cost of capital.

The problem: ABC wishes to estimate its cost of capital. The current capital structure is 40% debt, 10% preferred, and 50% common equity. The debt's ytm is 8.3%. Preferred has a par of $70, and 8% dividend, and sells for $76. Beta is 1.05. The risk free rate is 4%, and the market return is 11.4%. The tax rate is 40%. 1)What

Business Finance Questions

Each widget generates contribution margin of $100 ($250 selling price, less $150 variable expenses). The total fixed expenses are $35,000, the break-even point is: A. 250 B. 350 C. 233 D. 140 Each widget the selling price is $2, and the variable cost per unit $1.60. The total fixed expenses are $12,000, the bre

Accounting Assistance Requested for Studies

Please see the attached questions that I need assistance with. 1. Carry & Co. is in the process of analyzing its investment decision-making procedures. The two projects evaluated by the firm during the past months were Project 263 and 264. The basis variables surrounding each project analysis, using the IRR decision technique,

Finance: Compute Jersey Computer's optimal capital structure

Jersey Computer Company has estimated the costs of debt and equity capital (with bankruptcy and agency costs) for various proportions of debt in its capital structure: Proportion of Debt After-tax Cost Debt, ki After-tax Cost ofEquity, ke 0.00

Real options / WACC / Manufacturing plants abroad

Companies often have to increase their initial investment costs to obtain real options. Why might this be so, and how could a firm decide it was worth the cost to obtain a given real option? How might a firm's corporate WACC be affected by the size of its capital budget? Why do US corporations build manufacturing plants abr

Weighted Average Cost of Capital (WACC) Questions

10- 9 WACC The Patrick Company's cost of common equity is 16%, it's before-tax cost of debt is 13%, and its marginal tax rate is 40%. The stock sells at book value. Using the following balance sheet, calculate Patrick's WACC. Assets Liabilities and Equity Cash $120 Accounts receivable 240 Inventories 360 Long- term d

No Leverage, Inc., and High Leverage, Inc: Determine Optimal Capital Structure

Two firms, No Leverage, Inc., and High Leverage, Inc, have equal levels of operating risk and differ only in their capital structure. No Leverage is unlevered and High Leverage has $500,00 of perpetual debt in its capital structure. Assume that the perpetual annual income of both firms available for stockholders is paid out as