Company market value weighted-average cost of capital

Assignment Help Financial Management

Reference no: EM132063977

1. Company is evaluating a 10-year project requiring an initial investment of $50 million. The firm has made the following projections:

EBIT = $10 million

Interest Expense = $2 million

Tax Rate = 40%

Depreciation = $5 million/year

Debt/Equity Ratio = 20%

Cost of Equity = 15%

Total Cost of Capital = 12%

The firm does not intend to change its debt to equity ratio when making additional investments. Using FCFE, what is the expected net present value (NPV) of this project for the equity investors?

A. $9.18 million

B. $12.15 million

C. $16.83 million

D. $21.34 million

2. Corporation wants to determine its current market value weighted-average cost of capital. The market value of the firm's bonds is $1.5 million and the bond yield is 12.00%. Company has 125,000 shares of common stock outstanding and the current market price is $40 per share. The firm's tax rate is 30% and its beta is 1.2. The U.S. T-bill rate of return is 6.00% and the total market index rate of return is 11.00%. What is Company's market value weighted-average cost of capital?

A. 10.40%

B. 11.17%

C. 12.00%

D. 13.12%

Reference no: EM132063977

Questions Cloud

Leverage approach to determining optimal capital structure : Which of the following statements is true concerning the comparative leverage approach to determining an optimal capital structure?

Horizon moving quickly to its optimal capital structure : Which of the following arguments can be offered for Horizon moving quickly to its optimal capital structure?

Privately owned and currently using only equity financing : Corporation is privately owned and currently using only equity financing. how much total debt financing should Corporation use to reach optimal financing mix.

True concerning the optimal capital structure : Which of the following observations is true concerning the optimal capital structure?

Company market value weighted-average cost of capital : Determine its current market value weighted-average cost of capital. What is Company's market value weighted-average cost of capital?

What is the optimal capital structure of the firm : Company is trying to determine its optimal capital structure. Based upon the trade-off theory, what is the optimal capital structure of the firm?

Corporation moves to its optimal capital structure : How much value can be expected to be realized if Corporation moves to its optimal capital structure?

Find all valid rates of return for project : Find all valid rates of return for this project. For what range of MARR should this project be accepted using FW as the figure of merit?

A firm financing hierarchy is concerned with : A firm's financing hierarchy is concerned with. How the firm's prospective level of debt financing compares with other firms in its industry.

User Account

All Pages