WACC for a firm
Not what you're looking for?
a) xyz Industries has a target capital structure consisting of 30% debt, 10% preferred stock, and 60% common equity. The before-ta YTM on xyz long-term bonds is 9.5%, Its cost of preferred stock is 8%, and its cost of retained earnings is 12.5%. If the firm's tax rate is 40%, what is xyz's WACC if it doesn't have to issue new common stock?
b) xyz industries undertakes a variety of projects with different levels of risk. xyz adds 2 percentage points to its WACC for high-risk projects and subtracts 2 percentage points from its WACC for low-risk projects. in other words, the cost of capital for a high-risk project equals WACC=2% while a low risk project uses a cost of capital equal to WACC-2%. WACC remains the same for average-risk projects.
Management is considering the following list of projects and each projects risk i indicated in the table below.
project a---expected rate of return 10.7%---risk high
b--10.4%---average
c--8.5%--low
Purchase this Solution
Solution Summary
Solution assists in WACC for a firm
Solution Preview
WACC
a) xyz Industries has a target capital structure consisting of 30% debt, 10% preferred stock, and 60% common equity. The before-ta YTM on xyz long-term bonds is 9.5%, Its cost of preferred stock is 8%, and its cost of retained earnings is 12.5%. ...
Purchase this Solution
Free BrainMass Quizzes
Introduction to Finance
This quiz test introductory finance topics.
Production and cost theory
Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.
Change and Resistance within Organizations
This quiz intended to help students understand change and resistance in organizations
Situational Leadership
This quiz will help you better understand Situational Leadership and its theories.
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.