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Vitek1552 [10]
3 years ago
9

Daves Inc. recently hired you as a consultant to estimate the company's WACC. You have obtained the following information. (1) T

he firm's noncallable bonds mature in 20 years, have an 8.00% annual coupon, a par value of $1,000, and a market price of $1,000.00. (2) The company's tax rate is 25%. (3) The risk-free rate is 4.50%, the market risk premium is 5.50%, and the stock's beta is 1.20. (4) The target capital structure consists of 35% debt and the balance is common equity. The firm uses the CAPM to estimate the cost of equity, and it does not expect to issue any new common stock. What is its WACC? Do not round your intermediate calculations.
Business
1 answer:
inn [45]3 years ago
8 0

Answer:

9.315%

Explanation:

The computation of WACC is shown below:-

But before that we need to do the following calculations

PV -$1,000

PMT 80

N 20

FV $1,000

Compute IY 8%

After tax cost of Debt = Before tax cost of debt × (1 - tax rate)

= 8% × (1 - 25%)

= 6%

According to the CAPM,

Cost of Equity =Risk free Rate + (Beta × Market Risk Premium)

= 4.5% + (1.2 × 5.5%)

= 11.10%

Weight of Equity = 100% - 35%

= 65%

WACC = (Weight of Equity × Cost of Equity) + (Weight of debt × Cost of debt)

= (65% × 11.10) + (35% × 6)

= 9.315%

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Karolina [17]

Answer:

The answer is option ( C.) Increase of 1.06 percent

Explanation:

Data provided in the question:

Cost of equity = 14.6%

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Risk-free rate = 3.9%

Company's beta = 1.4

Now,

Expected Return = Risk-free rate + ( Beta × Market risk premium )

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= 3.9% + 11.76%

= 15.66%

Therefore,

The change in firm's cost of equity capital = 15.66% - 14.6%

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The answer is option ( C.) Increase of 1.06 percent

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2 years ago
You have a franchised planet fitness gym. you began the business by paying your initial franchise fees and now you pay royalties
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1 year ago
Which of the following is true of Peter Senge’s contributions to management thought and practices? A. He has made several signif
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Answer:

A. He has made several significant contributions to the areas of organizational learning and change.

Explanation:

<em>Option B</em>: Peter Drucker was the first person to discuss MBO, not Peter Senge. So, this option is incorrect.

<em>Option C</em>: It is the function of management. Therefore, Peter Senge might contribute to this one, but there is no evidence. So, it is wrong.

<em>Option D</em>: Peter Senge advocated the scientific methods of management, but not for the determination of efficient production.

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8 0
3 years ago
Lax LLC purchased only one asset during the current year (a full 12-month tax year). On August 26 Lax placed in service computer
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