Calculate the firm weighted average cost of capital

Assignment Help Financial Management

Reference no: EM132006004

The firm has $1,000,000 face amount of debt outstanding with a 5% coupon, a 10-year maturity and a market price of 96% of par. The firm has common equity in its balance sheet of $2,000,000. There are 100,000 shares outstanding with a market price of $30 per share. The beta on the common stock is 1.25, the risk-free rate is 2.50% per annum and the equity market risk premium is 5.50% per annum. The marginal tax rate is 25%. Use the Capital Asset Pricing Model to calculate the firm’s weighted average cost of capital.

1. What are the weights in the calculation?

2. What is the cost of debt?

3. What is the cost of equity?

4. What is the WACC?

Show step by step how to solve each of these questions with formulas and using excel.

Reference no: EM132006004

Questions Cloud

Large part of the firm cash to new product line : Executives at Lululemon Athletica have just written a plan that allocates a large part of the firm's cash to a new product line.

Firm equity after the capital structure adjustment : How much would be market value of firm’s equity after the capital structure adjustment?

What is value of stock if investors require rate of return : What is the value of the stock if investors require a rate of return of 11% per annum? How does the price change if the growth rate is 6% per annum?

Calculate the expected dividend yield : Calculate the growth rate in dividends. Calculate the expected dividend yield.

Calculate the firm weighted average cost of capital : Use the Capital Asset Pricing Model to calculate the firm’s weighted average cost of capital.

Earning can they distribute to shareholders as dividends : What portion of their earning can they distribute to shareholders as dividends?

Corporate taxes and variable costs to minimize issues : How can a company hedge or protect themselves or take advantage in corporate taxes and variable costs to minimize issues.

Determine whether the company position is immunized : The annual effective yield on all assets and liabilities is 6%. Determine whether the company's position is immunized.

The modified duration to the effective duration of this bond : Calculate the ratio of the modified duration to the effective duration of this bond.

User Account

All Pages