User Account

All Pages

Cost of debt and preferred stock

Assignment Help Business Management
Reference no: EM131970821

The formula is as follows: W A C C = Ke * We + Kd * Wd * ( 1 - T ). Where, Ke = Cost of Equity; We = Weight of Equity; Kd = Cost of Debt; Wd = Weight of Debt; and T = Tax Rate (Corporate Finance Institute, 2016). Cost of Equity is calculated firt then the Cost of Debt and Preferred Stock. In the given question:

  • Weights of 40% debt and 60% common equity (no preferred equity)
  • A 35% tax rate
  • Cost of debt is 8%
  • Beta of the company is 1.5
  • Risk-free rate is 2%
  • Return on the market is 11%

Ke = Rf + ( Rm - Rf ) * B. Where, Rf = Risk Free Rate; Rm = Return of Market; B = Beta API's Cost of Equity: Ke = 2 % + ( 11 % - 2 % ) * 1.5 = 15.5 % Weighted Average cost of capital = 15.5 % * 60 % + 8 % * 40 % * ( 1 - 35 % ) = 11.38 % is the project feasible?

Reference no: EM131970821

Questions Cloud

Year zero-coupon government bond : "If the yield on a 5-year zero-coupon government bond is 8.4% pa, then the yield on a 6-year zero-coupon government bond must be at least 6.95% pa.
How much will you have in the account 7 years from today : If you invest $250 at the end of each month for the next 7 years into an account that has an interest rate of 8.4% per year, compounded monthly
Who are the major parties in the given case : Who are the major parties in this case? What is the possible cause of action available to the auditor? What are the consequences of those actions?
Determine what will be the monthly loan payment : You want to buy a car, and a local bank will lend you $10,000. The loan will be fully amortized over 5 years (60 months).
Cost of debt and preferred stock : Tax Rate (Corporate Finance Institute, 2016). Cost of Equity is calculated firt then the Cost of Debt and Preferred Stock. In the given question:
Calculate amount of principal repaid in the first payment : A loan amortized over 3n yrs with annual payments=90 end-of-per year. After nth payment, OB-outstanding balance is 80% of the amount of the loan.
What is the firm book-to-market ratio : The firm has not repurchased any shares of its common stock. What is the firm's book-to-market ratio?
What is the margin of safety ratio : If Revere Company expects to sell 1,250 units of its product at $12 per unit, and break-even sales for product are $13,200. What is the margin of safety ratio?
Prepare an incremental analysis for the life of the machines : Prepare an incremental analysis for the life of the machines showing whether the company should replace the equipment.

Reviews

Write a Review

Business Management Questions & Answers

  Caselet on michael porter’s value chain management

The assignment in management is a two part assignment dealing 1.Theory of function of management. 2. Operations and Controlling.

  Mountain man brewing company

Mountain Man Brewing, a family owned business where Chris Prangel, the son of the president joins. Due to increase in the preference for light beer drinkers, Chris Prangel wants to introduce light beer version in Mountain Man. An analysis into the la..

  Mountain man brewing company

Mountain Man Brewing, a family owned business where Chris Prangel, the son of the president joins. An analysis into the launch of Mountain Man Light over the present Mountain Man Lager.

  Analysis of the case using the doing ethics technique

Analysis of the case using the Doing Ethics Technique (DET). Analysis of the ethical issue(s) from the perspective of an ICT professional, using the ACS Code of  Conduct and properly relating clauses from the ACS Code of Conduct to the ethical issue.

  Affiliations and partnerships

Affiliations and partnerships are frequently used to reach a larger local audience? Which options stand to avail for the Hotel manager and what problems do these pose.

  Innovation-friendly regulations

What influence (if any) can organizations exercise to encourage ‘innovation-friendly' regulations?

  Effect of regional and corporate cultural issues

Present your findings as a group powerpoint with an audio file. In addition individually write up your own conclusions as to the effects of regional cultural issues on the corporate organisational culture of this multinational company as it conducts ..

  Structure of business plan

This assignment shows a structure of business plan. The task is to write a business plane about a Diet Shop.

  Identify the purposes of different types of organisations

Identify the purposes of different types of organisations.

  Entrepreneur case study for analysis

Entrepreneur Case Study for Analysis. Analyze Robin Wolaner's suitability to be an entrepreneur

  Forecasting and business analysis

This problem requires you to apply your cross-sectional analysis skills to a real cross-sectional data set with the goal of answering a specific research question.

  Educational instructional leadership

Prepare a major handout on the key principles of instructional leadership

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