Find the cost of capital for the company

Assignment Help Finance Basics
Reference no: EM133112031

As the first task in your finance internship, you have been asked to find the cost of capital (WACC) for a company. The company has two main sources of capital available. The marginal tax rate for the company is 26%.

Common stock: 250 000 shares outstanding. The book value per share is $20. However, the company was recently able to issue new stock with the price of $35. The company paid recently out $2.5 as dividends and expects dividends to grow by 4% annually within foreseen future. The risk free interest rate is 2.5%.

Debt: 5 000 discount bonds with 1 000 par value and 5 years to maturity. The bonds currently offer 4% yield to investors.

a) Find the cost of capital (WACC) for the company

b) Provide an explanation about what your result means?

Reference no: EM133112031

Questions Cloud

What is the value of the firm to the equity holders : A regional firm has current market valuations of $250,000 in a boom and $90,000 in a recession. The chance of a boom is 60 percent with the remainder assigned t
What is the total costs of by products : Desired profit on C and D (P2,000 and P1,500). If the joint costs are allocated to by-products using the reversal cost method, what is total costs of by product
Project discounted payback period : You have just started your new position as a finance manager is Visible Inc. Your colleague presents you with the following cash flows of a proposed project (al
Record the transactions on the t-account worksheet : Received $940 in bills for electricity, water and telephone, to be paid next month. Record the transactions on the T-Account worksheet
Find the cost of capital for the company : As the first task in your finance internship, you have been asked to find the cost of capital (WACC) for a company. The company has two main sources of capital
Current spot exchange rate : Based on the rate quoted, United States is now giving the annual interest rate of 6.5% and United Kingdom is quoted 8.5%. The spot exchange rate is $1.87/£ and
Determine the minden co earnings per share : A dividend of $10,000 was paid to the common shareholders. There are 1,000 shares in the issue. Determine the Minden Co.'s earnings per share
What is the current value of a put option : What is the current value of a put option with an exercise price of $30? The six-month risk-free interest rate is 5%.
What is the amount of the initial payment : A city is initiating a sinking fund for development of a new landfill which will be constructed in exactly 10 years.(single payment 10 years from today).

Reviews

Write a Review

Finance Basics Questions & Answers

  What is the daily gain-the account balance

For days 1 through 5, what is the daily gain, the account balance, and the margin call?

  Enter the accompanying exchanges

a Petty money book is continued Imprest framework, the measure of imprest being Rs.1,000 and has seven investigation segments for Postage and Telegrams, Printing and Stationery, Traveling Expenses, Repairs, Carriage, Sundry Expenses and Personal Acco..

  What is apple inc major opportunities

What is Apple inc major opportunities in the coming years

  Political events during the 1920

In post-WW I America there was a real backlash to U.S. involvement abroad. The American people were largely tired of foreign involvement.

  What is the effective annual rate of return

You just purchased a preferred share. You paid $97.00 for the preferred share. The preferred share just paid a dividend of $4.50. Dividends are paid annually

  Provide the largest increase in eps

Although its own operations have shown no growth over the past decade, Hammerworks Inc. has built up a significant cash balance ($2.9 billion) in anticipation o

  Costs and relevant information that are assumed

Cost Classification: The Lee's have provided you with the following costs and relevant information that are assumed for year 20XY.

  Success of such programs in developing nations

?What could be the root of the success of such programs in developing nations? Can it work best only in developed countries like the US?

  What would be the ending balance of cash in november

If the minimum cash requirement is $30.000, what would be the ending balance of cash in November?

  What is the amount of payment

The terms of the loan call for monthly payments for 5 years at 4.8 percent interest. What is the amount of each payment?

  Which month to cut expense would give her the best return

If she decides to save money by cutting expenses, which month to cut expense would give her the best return? There are two deliverables for this case study, a short write-up of the project and the spreadsheet showing your work.

  Difference between effective rate and stated rate

1. Explain what calculating the time value of money does. 2. What is the difference between effective rate and stated rate? 3. Explain the relationship between inflation and the time value of money.

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