Determination of weighted average cost of capital

Assignment Help Finance Basics

Reference no: EM1349191

Given the following data for El Pollo Loco Inc:
a) Calculate its weighted average cost of capital (WACC).

Percent of capital structure:
Debt 35%
Preferred stock 10%
Common equity 55%
Additional Information:
Bond coupon rate 11%
Bond yield to maturity 9%
Dividend, expected common $ 2.50
Dividend, preferred $ 7.00
Price, common $ 45.00
Price preferred $ 100.00
Flotation costs, preferred $ 5.00
Growth rate 8%
Corporate tax rate 35%

b) What would be the WACC if the tax corporate rate increases to 45%?
c) What are the implications of the changes in part B) for investing in capital projects?

2. In general terms, why is the effective cost (cost to company) of debt less than the cost of common stock if both securities were priced to yield (return to the investor) 10 percent in the market?

Reference no: EM1349191

Questions Cloud

Explain what are some of the key decision criteria : Explain What are some of the key decision criteria that will help them determine which PMO model makes most sense?

Java application which creates bank records : Write down a java application which creates 10000 bank records and the allow user ti enter a balance and customer account info. using a an account number.

How will management use work teams and work groups : Which methods will be used to present the operational change and how would you develop a training that conveys to multiple audiences within the organization?

Preview of financial accountant-forecasting : Generally forecasting and planning is considered the preview of the financial accountant or the forecasting and planning department.

Determination of weighted average cost of capital : Given the following data for El Pollo Loco Corporation determine its weighted average cost of capital

Psychodynamic theories of freud and of adler : Compare and contrast the psychodynamic theories of Freud and of Adler.

Calculate the official settlements balance : Elucidate what happened to Ikonomia's net foreign assets during 2007. Did it acquire or lose foreign assets during the year.

Explain how important is product quality : Explain How important is product quality when a limited edition soft drink like Ice Cucumber sells out in a matter of weeks and What criteria would you suggest that Pepsi and Suntory use when screening ideas for new limited-edition soft drinks?

Explain what are keys to organizational and cultural change : Would organizational change be effective without cultural change and why or why not

User Account

All Pages