Calculate the cost of capital of the proposed new project

Assignment Help Finance Basics
Reference no: EM13946049

Question Abco distribution ltd wishes to evaluate an investment in a new era of activity-- manufacturing paint. Bath paints (BP) has been indentified as a company whose sole activity is to produce oaint. The systematic risk of BP's equity is 1.2 . Howecer BP is financed by one part debt to one part equity, whereas Abco Distributors is financed by two parts debt to three parts equity.

Further, Abco's management has estimated the risk-free interest rate to be 12 percent and the expected rate of return on the market portfolio( including the franking premium) to be 17 percent. The company income tax rate is 30 cents in the dollar. The propotion of tax collected from the company that is claimed by shareholders is 0.60, and the before- tax cost of Abco's debt is 14 percent per annum. Calculate the cost of capital of the proposed new project, specifying the assumptions on which your calculations are based.

Reference no: EM13946049

Questions Cloud

Reference list at the end of the article with citations : Carefully read this document (Professional Paper Worksheet Guidelines), including the Rubric. 2. From Doc Sharing, download the Professional Paper Worksheet Template. Rename that document as Your Last Name Professional Paper Worksheet.docx. Save i..
Do you need highly skilled people in your organization : What are your thoughts about the needs of organizations for a security specialist given the type of information you see here?
What is the dollar value of a 4-year 1 million yen loan : Your company can get yen loans for 2.0%. Dollar rates on the same loans are 4.5%. The spot yenper dollar exchange rate is 104. The forward rates for years 1 thru 4 are, 101.51, 99.08, 96.71, and94.40, respectively. What is the dollar value of a 4-..
Rectangular cross-section tube : Consider laminar, fully developed flow in a channel of constant surface temperature Ts. For a given mass flow rate and channel length, determine which rectangular channel, b/a = 1.0, 1.43, or 2.0, will provide the high- est heat transfer rate. Is t..
Calculate the cost of capital of the proposed new project : The propotion of tax collected from the company that is claimed by shareholders is 0.60, and the before- tax cost of Abco's debt is 14 percent per annum. Calculate the cost of capital of the proposed new project, specifying the assumptions on whic..
Identify and analyse current theories in accounting : Identify and analyse current theories and models in accounting, analysing how they apply to the given situation. Specific research supported recommendations need to be provided.
Transfer heat between liquids : A double-wall heat exchanger is used to transfer heat between liquids flowing through semicircular copper tubes. Each tube has a wall thickness of t = 3 mm and an inner radius of ri = 20 mm, and good contact is maintained at the plane surfaces by ..
Define job analysis and describe why its an important step : Define job analysis and describe why its an important step in the compensation process? Define ranking and discuss the pros and cons of using this as a job evaluation method?
Determine the equilibrium price and quantity : Plot the demand curve for the firm. Plot the corresponding supply curve on the same graph using the supply function Q = 5200 + 45P with the same prices. Determine the equilibrium price and quantity

Reviews

Write a Review

Finance Basics Questions & Answers

  Here is the following extension of the three date

here is the following extension of the three date diamond-dybvig model agents can invest in following three possible

  Department 65 has an issue of preferred stock

Department 65 has an issue of preferred stock that pays a dividend of $4.00. The preferred stockholders require a rate of return on this stock of 9%. At what price should the preferred stock sell for? Round

  Summary of the situation

Find an example when a company took up too much risk and was unable to cope with it. Give a short summary of the situation and also provide your own comments on the following issues:

  Discuss how the process of interest rate determination

you are the financial manager of a company of your choice. you have been asked to share with a group of college interns

  How can diversifying your investments reduce risk

An alternative approach to hedging risk is to focus instead of diversify. In this approach, which is just the opposite of diversifying, you would only invest in one thing.

  What is the firms quick ratio

The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over..

  Prepare the bank reconciliation for april

Prepare the Bank reconciliation for April. Prepare the necessary journal entries using T-Accounts.

  Assume that you have the following information on project a

assume that you have the following information on project a i it will yield cash flows of 960 per year forever ii the

  Maxwell industries has a debt-equity ratio of 15 its wacc

maxwell industries has a debt-equity ratio of 1.5. its wacc is 11 and its cost of debt is 8 . the corporate tax rate

  Firm is considering an investment

Your firm is considering an investment that will cost $750,000 today. The investment will produce cash flows of $250,000 in year 1, $300,000 in years 2 through 4, and $100,000 in year 5. What is the investment's discounted payback period if..

  Assume that a software organization is considering creating

assume that a software organization is considering creating a new software product. assume that the new software

  What would the full costing net income have been

Suppose that the company sold 8,000 units during the ear. What would the variable costing net income have been? What would the full costing net income have been?

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