Estimate the cost of equity

Assignment Help Finance Basics
Reference no: EM132050576

Daves Inc. recently hired you as a consultant to estimate the company's WACC. You have obtained the following information. (1) The firm's noncallable bonds mature in 20 years, have an 8.00% annual coupon, a par value of $1,000, and a market price of $1,225.00. (2) The company's tax rate is 40%. (3) The risk-free rate is 4.50%, the market risk premium is 5.50%, and the stock's beta is 1.20. (4) The target capital structure consists of 35% debt and the balance is common equity. The firm uses the CAPM to estimate the cost of equity, and it does not expect to issue any new common stock. What is its WACC? Do not round your intermediate calculations.

Reference no: EM132050576

Questions Cloud

What are 3 commercial insurance programs : Healthcare Finance What are 3 commercial insurance programs? Can you tell me how to bill for each program?
What is the expected payoff to the stock : A stock DEF has the following payoffs probabilities: What is the Expected Payoff to the stock?
Difference between the quoted rate and the effective rate : Calculate the difference between the quoted rate and the effective rate. Which option is the better choice for your company and why?
What is the overall impact of change on the organization : What is the overall impact of change on the organization, its employees, and its constituents, and what role does the manager play as an agent of change?
Estimate the cost of equity : The firm uses the CAPM to estimate the cost of equity, and it does not expect to issue any new common stock. What is its WACC?
Capital structure in computing its cost of capital : Please calculate the capital structure in computing its cost of capital?
What is the difference between these two wacc : What is the difference between these two WACCs?
What is the cost of equity and pretax cost of debt : If Jungle's cost of equity is 15.5 percent, what is the pretax cost of debt? what is the cost of equity?
What is quigley wacc : The firm will not be issuing any new stock. What is Quigley's WACC?

Reviews

Write a Review

Finance Basics Questions & Answers

  What are the primary requirements for a successful jit

what are the primary requirements for a successful jit inventory control

  What portion of the firm is debt financed

A firm has issued $20 million in long-term bonds that now have 10 years remaining until maturity. The bonds carry an 8% annual coupon and are selling.

  Why the credit crisis caused concerns about systemic risk

Concerns about Systemic Risk during the Credit Crisis: - Explain why the credit crisis caused concerns about systemic risk.

  Define financial restructuring and describe what is meant

Define financial restructuring and describe what is meant by debt payments extension and debt composition change.

  Prepare a consolidated worksheet

Prepare a consolidated worksheet, in proper financial statement format, to combine Flathead Corp. and Ribbon Co. for the year ended December 31, 20Y2. Be sure to provide explanations for all consolidation entries made.

  Calculate the npv and irr of proposed investment

The plane falls into the MACRS depreciation class for seven-year assets. GSHAI's combined federal and state income tax rate is 35 percent, and the company's weighted average cost of capital is 12 percent. Calculate the NPV and IRR of the proposed ..

  Calculate annual returns for goodman

Use the data given to calculate annual returns for Goodman, Landry, and the Market Index, and then calculate average annual returns for the two stocks and the index.

  What is the balance in the warranty liability account

Computer Wholesalers restores and resells notebook computers on eBay. It originally acquires the notebook computers from corporations upgrading their computer.

  Discuss the economic order quantity model

Appliance for Less is a local appliance store. It costs this store 524.56 per unit annually for storage, insurance, etc., to hold microwave in their inventory.

  What would be the future value of your investment

What would be the future value (FV) of your investment? Now assume the inflation is expected ti be 3 percent per year over the same three-year period. What would be the investment's FV in terms of purchasing power?

  Computation of expected returns and variances and covariance

Computation of expected returns and variances and covariance of stocks and Choose your own risk aversion coefficient

  Write on the effects of the 2008 financial crisis on the

write on the effects of the 2008 financial crisis on the investment in the gulf area gcc countries specially on

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