Explore BrainMass
Share

# Estimate WACC

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

No. 1

Based on its growth prospects, a private investor values a local bakery at \$750,000. She believes that cost savings having a present value of \$50,000. can be achieved by changing staffing levels and store hours. Based on recent empirical studies, she believes that appropriate liquidity discount is 20%. A recent transaction in the same city required the buyer to pay a 5% premium to the average price for similar businesses to gain a controlling interest in a bakery. What is the most she should be willing to pay for a 50.1% stake in the bakery?

No. 2

NOTE: That to estimate WACC for a levered private company, it is necessary to calculate the company’s levered B. This requires an estimate of the firm’s unlevered B, which can be obtained by de-levering the B for similar firms in the same industry

https://brainmass.com/economics/risk-analysis/estimate-wacc-463085

#### Solution Summary

Solution estimate WACC

\$2.19

## Estimating WACC and Leveraged Returns: Eschevarria Example

I am in need of help with these two.

(Estimating the WACC with three sources of capital) Eschevarria Research has the capital structure given here. If Eschevarria's tax rate is 30%, what is its WACC?

BOOK VALUE MARKET VALUE BEFORE-TAX COST
Bonds \$1,000 \$1,000 8%
Preferred stock \$400 \$300 9%
Common stock \$600 \$1,700 14%

(Leveraged returns) You have a chance to make a \$70,000 one-year investment. The investment is expected to earn 15%, and there are no taxes. If you borrow \$45,000 at 9% and put up the other \$25,000 with your own money, what will be your expected return on the \$25,000?

View Full Posting Details