Explain weighted average cost of capital

Reference no: EM131491547

Question: 1. Weighted Average Cost of Capital (WACC)

a. What is the after tax cost of debt if the YTM on Company A's debt is 9.8% and they are in the 40% tax bracket? Show formula and calculations.

b. What is the cost of Retained earnings (Equity) given D0 = 1.75, a growth rate of 4% and a current stock price of $35.00? Show formula and calculations.

c. What is the cost of preferred stock if the current preferred dividend is $2.00, and the current price of the preferred stock is $75.00? Assume the same tax rate as given in 1a. Show formula and calculations. Do not include the DRD in your answer.

d. What is the Weighted Average Cost of Capital if Company A is 40% debt, 20% preferred stock, and 40% equity? Show formula and calculations.

2. Capital Asset Pricing Model (CAPM)

a. What is the required return for a stock given that the risk-free rate is 7%, the Return on the Market is 12%, and the Beta of the stock is 1.5?

Reference no: EM131491547

Questions Cloud

Create closing entries and post to the accounts : Furniture and equipment is depreciated based on a 6-year life (no salvage value). Prepare closing entries and post to the accounts.

Track the profitability of the firm over the years : Tracking Credit Risk Measures: Toys "R" Us (Hard) Toys "R" Us, Inc., is the worlds largest toy retailer, with sales of nearly $12 billion in 1999.

Establish accounting principle for state governmental entity : Establish accounting principles for state and local governmental entities. Operate as proprietorships, partnerships, or professional corporations.

Book value and current resale value : Computer A has a book value of $1,500 and a current resale value of $800.

Explain weighted average cost of capital : What is the after tax cost of debt if the YTM on Company A's debt is 9.8% and they are in the 40% tax bracket? Show formula and calculations.

Behavior as a corporate citizen : Select a resort with which you are familiar and analyze its behavior as a corporate citizen.

Compute the taxable equivalent yield : A 4.20 percent coupon municipal bond has 14 years left to maturity and has a price quote of 97.55. Compute the taxable equivalent yield.

What annual saving can aqua system expect if implemented : Aqua System INC.experts to have $20,416,100 in credit sales turning the coming year. What annual saving can Aqua System expect if implemented?

What scores might you develop from these statements : Credit Scoring for a Firm with a Ratings Downgrade: Maytag Corporation (Medium) Maytag Corporation is the established manufacturer of washing machines, dryers.

User Account

All Pages