Estimate your company weighted-average-cost-of-capital

Assignment Help Financial Management

Reference no: EM131952769

1. You are about to start to consider a batch of new capital budgeting projects. Before you begin, you need to estimate your company’s Weighted-Average-Cost-of-Capital (WACC). The firm operates in the 35% marginal tax bracket. There are foursets of liability holders on the balance sheet. Calculate the WACC including all four classes of liabilities.

A. There are 7,630,000 shares of common stock outstanding. These are trading at $43.56 per share. You have decided to use the Gordon Growth Model to estimate the return required by your firm’s shareholders. In the most recent annual report the earnings per share (EPS) were $3.25. You feel that it is reasonable to assume that earnings will grow at about 1.20% into the foreseeable future.

B. There is an issue of 825,000 shares of preferred stock. These securities promise an(perpetual) annual dividend of $7.15. The shares are currently trading for $97.36.

C. There is an issue of 145,000 coupon bonds, which have a face value of $1,000, pay 4.75% (annual) coupons, and mature in 7 years. The securities are currently trading for $930.22.

D. The firm also has 50 short-term commercial paper notes outstanding that have a face value of $1,000,000, and mature in 49 days. These are currently selling for $995,392.37.

2. Contingent credit risk is more serious for futures contracts than forward contracts because the over-the-counter arrangements necessary to replicate the guarantees at a later date.

True

False

3. All off-balance-sheet items will eventually move on to the balance sheet at some point in time.

True

False

Reference no: EM131952769

Questions Cloud

Up-front fees on loan commitments are charged : Up-front fees on loan commitments are charged as a certain percentage of

Standby letters of credit are classified : Which of the following will increase a firm's need for additional funds? Standby letters of credit are classified as

Currency to hedge the foreign exchange risk : whether you should buy or short a forward contract on the FX currency to hedge the foreign exchange risk?

The no-arbitrage profit interest rate parity forward price : What is the no-arbitrage profit “Interest Rate Parity” forward price to enter a forward contract expiring in 90 days?

Estimate your company weighted-average-cost-of-capital : You are about to start to consider batch of new capital budgeting projects. You need to estimate your company’s Weighted-Average-Cost-of-Capital.

Seldom have risk-increasing attributes : Off-balance-sheet activities generally have risk-reducing attributes, but seldom have risk-increasing attributes.

Explain should you go long or short on forward contract : To hedge against a possible decline in price during next 2 months, please explain should you go Long or Short on a Forward contract?

Practices ensure relevance and prevent extinction : Non-profits must behave differently than they have in the past because best practices ensure relevance and prevent extinction

Investing portfolio includes long forward and long european : Describe profit from investing portfolio includes long forward and long European . Put option at a same underlying with the same strike price and period.

User Account

All Pages