Find an appropriate WACC that you should use

Assignment Help Financial Accounting
Reference no: EM132802401

Question - Company Three, Inc. is considering entering in to a new business and therefore needs to estimate the WACC for projects associated with the new venture. Their lead analyst has compiled the following list of comparable firms in the new industry. You note that all of the firms have different capital structures and that should be taken into account. Assume that the current Treasury bill rate is 1.0% and the market risk premium is 7%.

Table - Two, Inc.

Company

Equity Beta

Market Value of Debt

Market Value of Equity

A

1.2

100

50

B

1.4

100

45

C

0.8

100

90

D

0.4

100

200

(a) Assuming Three, Inc. will be subject to a marginal tax rate of 35% in the new venture, find an appropriate WACC that you should use for this new venture if it is funded with 100% equity. Assume the debt of each of the comparable companies is risk-free.

(b) Now, assuming that Three, Inc. will be subject to a marginal tax rate of 35% in the new venture, find an appropriate WACC that you should use for this new venture if it is financed with 50% debt and 50% equity. Assume the debt is risk-free.

(c) Finally, assuming there is a negligible risk of bankruptcy with 50% debt, would you recommend using debt financing for the new venture or all equity?

Reference no: EM132802401

Questions Cloud

How your psa poster targets the vulnerable population : How your PSA poster targets the vulnerable population? The burden of the disorder on the health of the population using epidemiological data.
How the practicum site influences community health behaviors : Analyze, using the chosen systems-thinking tool, how the practicum site influences the community's health behaviors to address health disparities or public.
What is the deductible expenses : Surcharge and compromise for the late payment of income tax - 30,000 and Interest on bonds issued - 40,000. What is the deductible expenses
Compare differences of qualitative and mixed method designs : Compare and contrast differences and similarities of qualitative, quantitative, and mixed method designs. Analyze qualitative and quantitative data for the.
Find an appropriate WACC that you should use : Assuming Three, Inc. will be subject to a marginal tax rate of 35% in the new venture, find an appropriate WACC that you should use for this new venture
Difference between deposition and condensation : Explain the difference between deposition and condensation. Give an example. Please and Thank you.
Explain what a project baseline is : Describe what the critical path of a project is, and explain the steps used to identify it using the Critical Path Method - Explain what a project baseline is
Find the amount allocated to the ending inventory on June : A physical count of merchandise inventory on June 30 reveals that there are 250 units on hand. Find the amount allocated to the ending inventory on June
How would you apply the information to a larger population : Develop a plan of education and anticipatory guidance for the family. How would you apply this information to a larger population? 300-word minimum.

Reviews

Write a Review

Financial Accounting Questions & Answers

  Define the receiables and what is net income

Is there a way to get a reference to go by to know how to answer the ratio questions off of the assignment of the jcpennys and kohls 10K? Understand the formulas just not the jargon that is on the 10K to compare with my text.

  What is current stock price for gruber corp

And will then cease paying the dividends forever. If the required rate of return on this stock is 9.5 percent, what is current stock price?

  Identify the assets and liabilities

Identify the assets (including contra assets) and liabilities. Classify each asset and each liability as current or long-term liabilities.

  Prepare the stockholders equity section

Shelby Corporation was organized in January 2010 by 10 stockholders to operate an air conditioning sales and service business. The charter issued by the state authorized the following capital stock.

  What is the pv of the both options

You've just been offered a temporary, If the interest rate is 10 percent compounded monthly, what is the PV of the both options? Which option would you choose?

  Compute what rate of return are offering on the investment

Compute what rate of return are offering on the investment? Someone offers to sell to you a financial contract that will pay $150 at the end

  Explain cash conversion cycle to junior financial officers

Explain cash conversion cycle to junior financial officers in the Company. Nicolas Taylor, the Chairman of the Zoo and Amusement Park Company

  The total revenue and implement it on a spreadsheet

The store wishes to establish a pricing policy to maximize revenue from the products. A study of price and sales data shows the following relationships between the quantity sold (N) and prices (P) of each model: Construct a model for the total revenu..

  Operating cycle of a manufacturer is length of time between

Trend analysis is analysis. The operating cycle of a manufacturer is the length of time between the. Harvest Catering is a local catering service. Using accrual accounting, when should Harvest recognize revenue from its catering service? Which one of..

  Compute the revenue recognized, construction costs expensed

Compute the revenue recognized, construction costs expensed, and income earned for each year using the percentage of completion method. Explain the potential risks associated with this accounting method and discuss why an analyst would be interes..

  Difference between limited partnership and liability company

Create a table listing the differences between a limited partnership and a limited liability company. Identify those activities in which a limited partner may engage without forfeiting limited liability.

  What holdaways cost of goods sold for the year is

What Holdaways cost of goods sold for the year is? Holdaway Co., a manufacturer, had inventories at the beginning and end of its current year

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