Determine the weighted average cost of capital

Assignment Help Accounting Basics
Reference no: EM132543046

Question - Assume Eternalife Company has the following capital structure, which it considers to be optimal: debt 30%, preferred stock 20%, and common stock 50%. The company's tax rate is 30%. Investors expect earnings and dividends to grow at a constant rate of 10% in the future. Eternalife Company paid a dividend of Br. 4.50 per share last year and its stock currently sells at a price of Br. 50 per share. Five-year treasury bonds yield 5%, the market risk premium is 4%, and Eternalife beta is 1.2. The following terms would apply to new security offerings.

Common Stock: New common equity will be raised only by retaining earnings.

Preferred stock: New preferred stock could be sold to the public at a price of Br.100 per share, with a dividend of Br.10, and floatation costs of Br.5 would be incurred.

Debt (bond): Debt could be sold at an interest rate of 10%.

Required -

Find the component costs of debt, preferred stock and common stock.

Determine the Weighted average cost of capital (WACC) of the company.

Reference no: EM132543046

Questions Cloud

Write an income statement for the year : Write an income statement for the year. All of the information needed for the income statement is available in the journal entries and T-accounts
Symbol for the formula of the compound : How to write the following calculations and report each answer with the correct number of significant figures.
Balanced ionization equation of sulphuric acid : Show the balanced ionization equation of sulphuric acid with one of the products being the hydrogen sulphite ion. Please include all states.
Financial investment in the corporation : The responsibility of the directors of a corporation is to provide a return to shareholders on their financial investment in the corporation
Determine the weighted average cost of capital : Find the component costs of debt, preferred stock and common stock. Determine the Weighted average cost of capital (WACC) of the company
Calculate the mass of strontium hydroxide : Calculate the mass of strontium hydroxide required to make a 450 mL solution with a pOH of 10. 00. Do the balance dissociation equation first.
Describe the three categories of ratios : Describe the three categories of ratios used in ratio analysis. which of these ratios do you think is the most important indicator of successful performance,
Calculate the new ph of the solution : In a first dilution, 10,0 mL of the 1.0 mol/L HCl(aq) solution is brought up to 100 mL with the addition of 90 mL of deionized water
By how much the company deferred tax liability increase : Given a tax rate of 35% and a first-year accelerated depreciation factor of 0.333, by how much will the company's deferred tax liability increase

Reviews

Write a Review

Accounting Basics Questions & Answers

  Prepare a schedule of cash collections for may

Prepare a schedule of cash collections for May 2016. Prepare the budgets for purchases of inventory in units and in dollars for months of April and May 2016.

  What is the rate of return that lloyd company will earn

Lloyd Company invested $10,271 in production machinery. What is the rate of return (or interest) that Lloyd Company will earn from this investment

  Freedom co purchased a new machine on july 2 2010 at a

freedom co. purchased a new machine on july 2 2010 at a total installed cost of 44000. the machine has an estimated

  Calculate the companys total production cost per unit if

under absorption costing a company had the following per unit costs when 10000 units were produced.direct labor

  Indirect costs allocation to the consumer department

Management estimates that it costs $500 to analyze and close a commerical loan. This amount has been included in the $250,000 of inderict costs. How much of the $250,000 indirect costs should be allocated to the Consumer Department?

  Consider the task of scheduling five jobs abcd and e which

consider the task of scheduling five jobs abcd and e which needs 5423 and 3 hours respectively on machine 1 and 3144

  Make the statement of cash flows of humorous ltd

Purchased a plant asset for $530,000; $162,000 in cash and $368,000 on loan. Make the statement of cash flows of Humorous Ltd for the year to 30 June 2019

  What would be trojans overall net cash flow with regard to

trojan corporation issued a bond on january 1 2003. interest on the bond was payable annually at december 31. the bond

  Use of the carryback provision

There were no permanent or temporary differences during these three years. The corporate tax rate is 30% for 2006 and 2007, and 40% for 2008. Assuming that Neasha elects to use the carryback provision, what income (loss) is reported in 2007?

  To offer new subscribers one of three gifts

The publisher of a sports magazine plans to offer new subscribers one of three gifts: a sweatshirt with the logo of their favorite team, a coffee cup with the logo of their favorite team, or a pair of earrings also with the logo of their favorite ..

  Investment income of $ 3,000 was received in cash

Investment income of $ 3,000 was received in cash The fund liabilities for interest on bonds in the amount of $ 50,000 and principal in the amount of $ 100,000 were recorded, and cash for the total amount was transferred to the fiscal agent.

  What is the total consideration transferred by allfoods

What is the total consideration transferred by Allfoods in the acquisition of Baked Beans

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!

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