Dunkin weighted cost of capital

Assignment Help Finance Basics
Reference no: EM132083445

Dunkin currently has a capital structure of 60 percent debt and 40 percent equity, but is considering a new product that will be produced and marketed by a separate division. The new division will have a capital structure of 80 percent debt and 20 percent equity. Dunkin has a current beta of 2.1, but is not sure what the beta for the new division will be. AMX is a firm that produces a product similar to the product under consideration by Dunkin. AMX has a beta of 1.8, a capital structure of 35 percent debt and 65 percent equity and a marginal tax rate of 40 percent. Dunkin' tax rate is 40 percent. What will be Dunkin's weighted cost of capital for this new division if the after-tax cost of debt is 8 percent, the risk-free rate is 7 percent, and the market risk premium is 9 percent?

For this question, I have already calculated and got levered beta is 4.6257 and Ke is 0.162514. However, the question is weighted cost of capital and the formula is

WACC = ((E/V) * Re) + [((D/V) * Rd)*(1-T)].

Reference no: EM132083445

Questions Cloud

What is the current share price : What is the current share price? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
Which assets should delta corporation have elected : Which assets should Delta Corporation have elected Section 179 expensing for to have maxi- mized its depreciation expense and why
What is the price of the stock : A firm had EPS of $5.10 and paid dividends of $2.04 (think payout rate). The firm has a ROA of 12% and a ROE of 15%.
What is the price of the stock : A company has earnings per share of $3.82 from which it just paid $1.34 in dividends (think payout rate).
Dunkin weighted cost of capital : What will be Dunkin's weighted cost of capital for this new division if the after-tax cost of debt is 8 percent, the risk-free rate is 7 percent
Discuss why it is so important for all application builders : Discuss why it is so important for all application builders to always check data received from unknown sources, such as Web applications, before using that data
Design a neural network with three layers : Design a neural network with 3 layers - input, hidden and output for the following data.
Provide a walkthrough for the problem : A dealer is quoting a bid discount of 0.75 and an ask discount of 0.73 on a T-Bill with a maturity of 125 days.
Discuss what types of transactions give rise to accounts : Discuss what types of transactions give rise to accounts receivable - With the Allowance method for Uncollectible Accounts, there are two ways of estimating

Reviews

Write a Review

Finance Basics Questions & Answers

  A company had earnings per share eps of 632 at the end of

a company had earnings per share eps of 6.32 at the end of 2007 and 11.48 at the end of 2012. the company pays out 30

  Citigroup announced that charles prince

Changes in corporate leadership can have a significant impact on how the company functions. In 2007, Citigroup announced that Charles Prince would no longer be the CEO. Vikram Pandit was appointed as the CEO.

  Compare channels of distribution to product and price

Please compare Channels of Distribution to Product, Price, & Promotion in terms of its importance within the Marketing Mix.

  Suppose schuler has a change in management the new group

1. the risk-free rate of return rrf is 11 the required rate of return on the market rm 16 and schuler companys stock

  What does the market believe will be the stock price

what does the market believe will be the stock's price at the end of 3 years (i.e., what is )? Do not round intermediate steps. Round your answer to the nearest cent.

  What is the effective annual return friendly earns

What's the effective annual return Friendly's earns on this lending business? If you were brave enough to ask, what APR would Friendly's say you were paying?

  What was the original issue price

North Pole Cruise Lines issued preferred stock many years ago. It carries a fixed dividend of $7 per share. With the passage of time, yields have soared.

  Explain the two risks faced by the holder of a bond

Assuming a change in interest rates over time, explain the two risks faced by the holder of a bond - The ability to immunize a bond portfolio is very desirable for bond portfolio managers in some instances.

  Caculate the value of the share of xyz if the company has

xyz has a debt of 27500000 and is expected to produce fcf of 11750000 next year caculate the value of the share of

  Beginning and ending balances in cash

You compare the beginning and ending balances in cash on the balance sheet and compose the net inflow or outflow of cash. What could be easier?" Do you agree?

  Discipline-related topic

Ultimately, you will be presenting yourself, and your discipline-related topic, often throughout your career. As you have seen, even the "elevator speech" can carry significance in your communication capability and relationships with others.

  Calculate the present value of the following bond

Given the following information, calculate the present value of the following bond that pays semi-annual coupons. Par value: $1,000. Coupon Rate: 8%.

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