User Account

All Pages

Calculate the firm market capitalization

Assignment Help Accounting Basics
Reference no: EM131804903

Question - Shearer Sales Consulting (SSC) has 20 million shares of stock outstanding that trade at $50. The risk-free interest rate is 4% and the market risk premium is 7.6%. This stock has a beta of 2.16. SCC also has $350 million in 11% bonds outstanding and the company has a 34% tax rate. Show all calculations for each of your answers to earn full credit.

Part 1: a) Calculate the firm's market capitalization, and then calculate the enterprise value.

b) Use the CAPM formula to determine the firm's cost of equity, and

c) Utilize this information to calculate SCC's weighted average cost of capital.

Part 2: a) Assume that SCC issues $100 million in bonds to buy back $100 million in common stock in order to recapitalize the firm. What is Shearer Consulting's new WACC?

b) Finally, discuss why there is a change in WACC and explain the impact of the components of capital structure on a company's cost of capital.

Reference no: EM131804903

Questions Cloud

Calculate the total cost of goods sold for the month : Using the FIFO inventory method calculate the total cost of goods sold for the month. Please round total cost to nearest whole dollar.
Managerial economics and strategy : Read pp. 270-271 "Keeping on Trucking" from the text book by Perloff, Jeffery, and Brander, James (2017). Managerial Economics and Strategy.
Insurance invoice indicates that one half of the policy : An analysis of the insurance invoice indicates that one half of the policy has expired by the end of the December 31 year-end
Hr technology is to blame : It almost seems that your resume is going into the proverbial black hole. Do you feel that HR technology is to blame for this? Thoughts anyone?
Calculate the firm market capitalization : Shearer Sales Consulting (SSC) has 20 million shares of stock outstanding that trade at $50. Calculate the firm market capitalization
Producing a competitive advantage : Is there reason to believe that BMW's differentiation strategy has been successful in producing a competitive advantage? Why or why not
Why on-the-job training can be ineffective : What are some reasons why on-the-job training can be ineffective? What can be done to ensure its effectiveness?
Disadvantages of use of surveillance cameras in public place : What are the advantages and disadvantages of the use of surveillance cameras in public places? Do you believe that the advantages outweigh the disadvantages.
Provide the closing entry for the income summary account : Provide the closing entry for expenses. Provide the closing entry for the Income Summary account. Prepare a Post-Closing trial balance.

Reviews

Write a Review

Accounting Basics Questions & Answers

  How much control does fed have over this longer real rate

Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest.   How much control does the Fed have over this longer real rate?

  Coures:- fundamental accounting principles

Coures:- Fundamental Accounting Principles: - Explain the goals and uses of special journals.

  Accounting problems

Accounting problems,  Draw a detailed timeline incorporating the dividends, calculate    the exact Payback Period  b)   the discounted Payback Period. the IRR,  the NPV, the Profitability Index.

  Theory of interest - term structure of interest rates

Term Structure of Interest Rates

  Write a report on internal controls

Write a report on Internal Controls

  Prepare the bank reconciliation for company

Prepare the bank reconciliation for company.

  Cost-benefit analysis

Create a cost-benefit analysis to evaluate the project

  Theory of interest

Theory of Interest: NPV, IRR, Nominal and Real, Amortization, Sinking Fund, TWRR, DWRR

  Liquidity and profitability

Distinguish between liquidity and profitability.

  What is the expected risk premium on the portfolio

Your Corp, Inc. has a corporate tax rate of 35%. Please calculate their after tax cost of debt expressed as a percentage. Your Corp, Inc. has several outstanding bond issues all of which require semiannual interest payments.

  Simple interest and compound interest

Simple Interest, Compound interest, discount rate, force of interest, AV, PV

  Capm and venture capital

CAPM and Venture Capital

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!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

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