About the company capital structure

Assignment Help Financial Management
Reference no: EM131551226

Calculating WACC. Bargeron Corporation has a target capital structure of 75 percent common stock, 5 percent preferred stock, and 20 percent debt. Its cost of equity is 10.9 percent, the cost of preferred stock is 5.1 percent, and the pretax cost of debt is 5.8 percent. The relevant tax rate is 35 percent.

A) What is the company's WACC?

B) The company president has approached you about the company's capital structure. He wants to know why the company doesn't use more preferred stock financing, since it costs less than debt. What would you tell the president?

Reference no: EM131551226

Questions Cloud

What is the value of barts equity : Bart Industries is about to be purchased by Kramer Enterprises. What is the value of Bart’s equity?
Company capital structure weights on a book value basis : What are the company's capital structure weights on a book value basis? Which are more relevant, the book or market value weights? Why?
Calculating cost of equity : If the risk-free rate is 3.6 percent and the expected return on the market is 11 percent, what is the company's cost of equity capital?
Finding the target capital structure : Fama's Llamas has a WACC of 8.65 percent. The tax rate is 35 percent. What is the company's target debt–equity ratio?
About the company capital structure : The company president has approached you about the company's capital structure.
Calculating cost of preferred stock : Sixth Fourth Bank has an issue of preferred stock with a $4.20 stated dividend that just sold for $93 per share. What is the bank's cost of preferred stock?
Calculating cost of debt : What is the company's pretax cost of debt? If the tax rate is 38 percent, what is the aftertax cost of debt?
Treatment of different ailments-diabetes and obesity : Bayer Pharmaceuticals is currently in the development of a drug, Hymilin, that has shown promise in the treatment of different ailments: diabetes and obesity.
The risk-free rate and market risk premium : If the risk-free rate is 4.1 percent and the market risk premium is 7 percent, are these stocks correctly priced?

Reviews

Write a Review

Financial Management Questions & Answers

  Calcuate the net profit or loss from buying a put option

Calcuate the net profit or loss from BUYING a PUT option on Taz if at the time of expiration the price per share of Taz is $54.00.

  Standard deviation of portfolio of securities with no risk

What is the effective interest rate for a $1,000 bond paying interest semi-annually with an APR of 10%? What is the standard deviation of a portfolio of securities with no risk?

  Roles of hedgers and speculators in the currency markets

Discuss the roles of hedgers and speculators in the currency markets.

  Annually compounded interest

If you have a choice to earn simple interest on $10,000 for three years at 8% or annually compounded interest at 7.5% for three years which one will pay more and by how much?

  How much of this judgment would the insurance cover

Becky Fenton has 70/140/80 automobile insurance coverage. If two other people are awarded $115,000 each for injuries in an auto accident in which Becky was judged at fault, how much of this judgment would the insurance cover?

  New project that will require an initial investment

Kuhn Co. is considering a new project that will require an initial investment of $45 million. It has a target capital structure of 35% debt, 2% preferred stock, and 63% common equity. Kuhn does not have any retained earnings available to finance this..

  How many additional months are required to pay off the loan

If it continues the $2276.0 payments, how many additional months are required to pay off the loan?

  Use as initial investment in fixed assets when evaluating

Parker & Stone, Inc., is looking at setting up a new manufacturing plant in South Park to produce garden tools. The company bought some land 6 years ago for $4 million in anticipation of using it as a warehouse and distribution site, but the company ..

  What should be forward price for no arbitrage opportunity

Current bond price is $1000 and coupon payments will be made $60 every 6 months. what should be forward price for no arbitrage opportunity?

  Determine its pretax cost of debt

Mudvayne, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 18 years to maturity that is quoted at 108 percent of face value. The issue makes semiannual payments and has an embedded cost of 4 percent annually. ..

  What is expected return and standard deviation of return

You manage an equity fund with an expected risk premium of 13.8% and a standard deviation of 52%. The rate on Treasury bills is 3.6%. Your client chooses to invest $120,000 of her portfolio in your equity fund and $30,000 in a T-bill money market fun..

  Add the same dollar amount of value to the firm

The investment in project A is $1 million, and the investment in project B is $2 million. Both the projects have a unique internal rate of return of 20 percent. Both the projects will add the same dollar amount of value to the firm. Do you agree? Exp..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd