Question

You have been asked to determine Wacc for Business point, a comprehensive web hosting service for...

You have been asked to determine Wacc for Business point, a comprehensive web hosting service for small business.

Business Point has a debt-to-equity ratio is lower that usual at 40%. The tax rate is 30%.Your asaistant has provided you with the following on comparable firms.

Firms Levered Beta D/E ratio

Omega 1.4 , 0.3

Redmond 1 , 0.1

White Plains 1.2, 0.2

So your next task is to determine the unleaveres beta of each of these firms.

Using an average of those un;evered betas estimate a levered equity beta for Business Point.

Give T-Bills are currently yielding 0.9% and the return on market is 7.2%, calculate the required return Business Point stock, according to the CAPM.

Business Point, currently, has outstanding 10-year maturity bonds with a par value of $1,000 that pay a 5% annual coupon, that are selling for 970. Calculate Business Point required return on debt.

Based on your results above, calculate the weighted average cost of capital of BusinessPoint.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
You are calculating an equity required rate of return for Kings Corporation (KC) using the CAPM....
You are calculating an equity required rate of return for Kings Corporation (KC) using the CAPM. Rather than relying on the published beta for KC or calculating one yourself, you are going to base you required rate of return on the betas of two comparable companies: ABL and NBL. The debt-TA ratio of KC is 0.75 and the corporate tax rate is 0.21. The appropriate risk-free rate of return is 2.75 percent and the appropriate equity risk premium is 5.5...
3. You have been asked to analyze the stock of Watson Corp, and need to calculate...
3. You have been asked to analyze the stock of Watson Corp, and need to calculate its cost of equity in order to do so. Your boss has instructed you to calculate the cost of equity in two different ways – the dividend growth model approach and the CAPM approach – and then average the two figures to determine your final answer. The stock currently trades at $45, and next year’s dividend (D1) is estimated to be $1.18. The previous...
Assume you have just been hired as a business manager of Pamela’s Pizza, a regional pizza...
Assume you have just been hired as a business manager of Pamela’s Pizza, a regional pizza restaurant chain. The firm is currently financed with all equity and it has 15 million shares outstanding. When you took your corporate finance course, your instructor stated that most firm’s owners would be financially better off if the firms used some        debt. When you suggested this to your new boss, he encouraged you to pursue the idea. As a first step, assume that...
You have been tasked to determine whether Raleigh Inc.’s stock is fairly priced. Raleigh Inc. currently...
You have been tasked to determine whether Raleigh Inc.’s stock is fairly priced. Raleigh Inc. currently has EBIT of $5M, $10M of debt outstanding at 9%, and a tax rate of 28%. Raleigh Inc. has consistently maintained a 55% payout ratio and you do not expect the firms payout ratio or EBIT to change in the future. The firm has a Beta of 1.2, the market risk premium is 10%, and treasury bills are currently yielding 4%. Raleigh Inc. has...
You are in the midst of valuing a large, risky investment in an offshore windfarm. You...
You are in the midst of valuing a large, risky investment in an offshore windfarm. You are faced with two options: using generic turbines or using new-technology turbines. Building the wind farm with generic technology is cheaper: a generic wind farm costs 50M while a new technology wind farm has a price tag of 80M. Either option will create $3M in FCF next year that will grow at a rate of 3.2% in perpetuity. To evaluate your project, you find...
You have been asked by JJ Corporation to estimate its cost of capital. It currently has...
You have been asked by JJ Corporation to estimate its cost of capital. It currently has 9.1 million shares, $0.1 par value, outstanding trading at $10 per share. In addition, it has 50,000 bonds with a coupon rate of 8% trading at 98% of face value of $1000. The bonds yield a rate of return of 9%. The beta for equity is 1.2. The risk-free rate is 2.5%. The current market risk premium is 5%. The tax rate is 25%....
You were appointed the CFO of a firm with 2 divisions: Div. 1 -- produces regular...
You were appointed the CFO of a firm with 2 divisions: Div. 1 -- produces regular telephones Div. 2 -- produces specialty micro-chips which are used in cell phones Given Information: Market value of your firm’s debt = $100 million Market value of your firm’s equity = $100 million Overall/total value of firm = $200 million. Beta of firms’ equity = 2 Firm’s debt = riskless. Expected excess return on the market over the riskless rate = 8% percent Risk-free...
You have been given the task of calculating the WACC of ABC Inc. You will use...
You have been given the task of calculating the WACC of ABC Inc. You will use the following information to calculate the WACC. The firm has 3000 coupon paying bonds outstanding. Each coupon-paying bond has a face value of $1000, will mature 10 years from today, and is currently priced at 130% of the face value. The annual coupon rate is 12%, and coupon is paid on an annual basis. The company has 500,000 common shares outstanding, and each share...
You have been given the task of calculating the WACC of ABC Inc. You will use...
You have been given the task of calculating the WACC of ABC Inc. You will use the following information to calculate the WACC. The firm has 3000 coupon paying bonds outstanding. Each coupon-paying bond has a face value of $1000, will mature 10 years from today, and is currently priced at 130% of the face value. The annual coupon rate is 12%, and coupon is paid on an annual basis. The company has 500,000 common shares outstanding, and each share...
?You have been asked by an investor to value a restaurant. Last year, the restaurant earned...
?You have been asked by an investor to value a restaurant. Last year, the restaurant earned pretax operating income of $350,000. Income has grown 5% annually during the last five years, and it is expected to continue growing at that rate into the foreseeable future. The annual change in working capital is $30,000, and capital spending for maintenance exceeded depreciation in the prior year by $20,000. Both working capital and the excess of capital spending over depreciation are projected to...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT