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miss Akunina [59]
4 years ago
8

To estimate the company's WACC, Marshall Inc. recently hired you as a consultant. You have obtained the following information. (

1) The 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 $1,050.00. (2) The company's tax rate is 40%. (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 common stock, and it does not expect to issue any new shares. What is its WACC?
Business
1 answer:
frez [133]4 years ago
3 0

Answer:

The correct answer is: 8.72%

Explanation:

Cost of debt K d = I (1 – t) + (-pi)/n

(SV + RV)/2

= 80(1 – 0.40) + (-75)/25

(1,000 + 1,075)/2

= 0.043 or 4.3%

Cost of equity K e = R f + b (R m – R f)

R m – R f = 5.5% = market risk premium

R f = risk free rate = 4.5%

B = beta = 1.2

K e = 4.5% + 1.2(5.5%)

= 11.1%

WACC = W d * K d + We * K e

= 35% * 4.3% + 65% * 11.1%

= 1.505 + 7.215

= 8.72%

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4 0
3 years ago
Ceteris paribus, for the owner of a sawmill, lumber and the sawdust that go into particle board are
Katyanochek1 [597]
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6 0
3 years ago
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n200080 [17]

Answer:

$27.20

Explanation:

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= Variable overhead rate per hour + Fixed Overhead rate per hour

where,

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Andrej [43]

Incomplete question. However, I answered from a general research perspective.

<u>Explanation:</u>

<em>What role do sources play in validating an argument?</em>

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