Question

4. Amco Ltd’s shares have a market value of $100,000,000. The company’s bonds have a market value of $50,000,000. The shares have a beta of 1.5. The risk free rate of interest is 4.0%. The market’s expected rate of return is 8%. The bonds have a yield to maturity of 6%. If the corporate taxation rate is 30%, what is the company’s weighted average cost of capital?

Answer #1

Weighted average cost of capital example
•
A corporation has 10,000 bonds outstanding with a 6%
annual coupon rate, 8 years to maturity, a $1,000 face
value, and a $1,100 market price.
•
The company’s 100,000 shares of preferred stock pay a $3
annual dividend, and sell for $30 per share.
•
The company’s 500,000 shares of common stock sell for
$25 per share and have a beta of 1.5. The risk free rate is
4%, and the market return...

A company has 3 million shares outstanding at a market price of
$1.50 each. The company's bonds have a total market value of
$2,700,000, have a coupon rate of 3% p.a. and currently yield 4%
p.a. The current market value of preference shares is $500,000 and
currently return 5% p.a. The company has a beta of 0.7, the market
risk premium is 6% p.a., the risk-free return is 2% p.a., and the
company tax rate is 30%,
What is the...

A company has 3 million shares outstanding at a market price of
$1.50 each. The company's bonds have a total market value of
$2,700,000, have a coupon rate of 3% p.a. and currently yield 4%
p.a. The current market value of preference shares is $500,000 and
currently return 5% p.a. The company has a beta of 0.7, the market
risk premium is 6% p.a., the risk-free return is 2% p.a., and the
company tax rate is 30%,
What is the...

19.
Fun & Games Entertainment Inc. is in the process of
evaluating a new theme park construction project. Obviously, they
need a discount rate for their NPV calculation and will use the
company's WACC. Use the information below to calculate the weighted
average cost of capital (WACC):
The company has 1,000,000 shares on issue.
The shares trade at $17.90 and have a Beta of 1.40.
The expected return on the market is 8% and the risk free rate
is 3%....

A company has 3 million shares outstanding at a market price of
$1.50 each. The company's bonds have a total market value of
$2,700,000, have a coupon rate of 3% p.a. and currently yield 4%
p.a. The current market value of preference shares is $500,000 and
currently return 5% p.a. The company has a beta of 0.7, the market
risk premium is 6% p.a., the risk-free return is 2% p.a., and the
company tax rate is 30%,
What is the...

Droz's Hiking Gear, Inc. has found that its common equity
capital shares have a beta equal to 1.5 while the risk-free return
is 8 percent and the expected return on the market is 14 percent.
It has 7-year semiannual maturity bonds outstanding with a price of
$767.03 that have a coupon rate of 7 percent. The firm is financed
with $120,000,000 of common shares (market value) and $80,000,000
of debt. What is the after-tax weighted average cost of capital for...

The current stock price for a company is $44 per share, and
there are 7 million shares outstanding. The beta for this firms
stock is 1.5, the risk-free rate is 4.2, and the expected market
risk premium is 5.8%. This firm also has 200,000 bonds outstanding,
which pay interest semiannually. These bonds have a coupon interest
rate of 7%, 27 years to maturity, a face value of $1,000, and an
annual yield to maturity of 8.8%. If the corporate tax...

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