Expected return on the market portfolio

Assignment Help Financial Management

Reference no: EM131339738

1. A friend that has a mid-sized company has hired you as a consultant. She wants you to calculate the WACC for her firm. She gives you the following information:

Debt: The firm has face value of $150,000,000 outstanding of zero coupon debt with a maturity of 10 years. The current yield to maturity on similar debt is 4.20%.

Equity: The firm has 70 million shares of stock outstanding trading at $10 per share. The company’s tax rate is 35%. The firm’s beta is 1.2, the expected return on the market is 7%, and the risk free rate is 1.50%. What is the WACC of the company?

a. 7.432%

b. 7.15%

c. 7.616%

d. Not enough information

2. Wal-Mart’s equity beta is 1.2, its debt-to-equity ratio is 0.4, and it borrows at the risk-free rate of 6%. The corporate tax rate is 34%. The expected return on the market portfolio is 12%. What is Walmart’s WACC if the tax rate is zero?

a. 9.50 percent b. 13.20 percent c. 10.56 percent d. 11.14 percent e. None of the above

Reference no: EM131339738

Questions Cloud

What is the biological cause for adolescent moodiness : What is the biological cause for adolescent moodiness during puberty? Describe and briefly explain the 4 categories that make up general self-esteem

What you know about relationship between attitude and action : Using what you know about the relationship between attitude and action, propose a strategy the group leader could use to improve their attitudes and accomplish the group's stated goal

Trade-offs that are implied in capital structure decision : How has changes in capital structure affected the firm’s earnings per share, market value, share price, and cost of capital? What are some of the trade-offs that are implied in the capital structure decision? The relationship between an investment op..

Which of the following is an example of a complex attitude : Which of the following is an example of a complex attitude? Which of the following traits is considered attractive across all cultures

Expected return on the market portfolio : Wal-Mart’s equity beta is 1.2, its debt-to-equity ratio is 0.4, and it borrows at the risk-free rate of 6%. The corporate tax rate is 34%. The expected return on the market portfolio is 12%. What is Walmart’s WACC if the tax rate is zero? The firm ha..

Preferred stock is more risky than common stock : Preferred stocks pay a lower potential reward than common stocks. Preferred stock is more risky than common stock. In real life, when an individual expects the economy to expand, he should hold no nominal assets. the stock and bond markets are very e..

Identify an important issue related to sport psychology : First, identify an important Issue related to sport psychology and describes that issue in detail during the first half of the paper. Then, in the paper's second half, analyze the issue and suggests solutions. Analysis requires breaking a subject..

Determine the value of expansion of its current operations : Wal-Mart’s equity beta is 1.2, its debt-to-equity ratio is 0.4, and it borrows at the risk-free rate of 6%. The corporate tax rate is 34%. The expected return on the market portfolio is 12%. What discount rate should Walmart use to determine the valu..

Firm to achieve targeted weighted average cost of capital : You own a portfolio comprised entirely of 100 shares of Stock A and 500 shares of Stock B. Stock A’s expected return is 14%, and Stock B’s expected return is 9%. What is the expected return on the portfolio? Phil's Carvings, Inc. wants to have a weig..

User Account

All Pages