Use the dividend growth model

Assignment Help Financial Management

Reference no: EM132033505

A firm has $50 million in 10-year debt with a YTM of 9% and a coupon of 10% and thus selling at premium of $64.18

It also has 200,000 shares of preferred stock with a $4 dividend that sells for $90 a share and common stockwith a book value of $80 million and a par value of $5 a shre that sells for $50 a share.

The common stock pays a dividend of $4 which is expected to grow at 5% rate forever. The firm has a beta of 1.2

A. Given this data find WACC for this firm if the tax rate is 40%. Use the dividend growth model. Then repeat using the CAPM if the expected return on the S&P is 13% and the risk-free rate is 7%

B. Next, assume this firm wants to get into a new industry and has chosen a proxy company with a beta of 1.6 and debt-to-equity ratio of 0.4

Find the WACC for the firm.

Reference no: EM132033505

Questions Cloud

Provide an accompanying statement from the artist : Share an example of a 20th/ 21st-century controversial work of art, (music, literature, sculpture, film, painting etc.), and provide an accompanying statement

Dangers associated with its using is own beta in calculation : What are the dangers associated with its using is own beta in the calculation?

Find the required return on the new project : Find the required return on the new project that Firm X is considering.

A price increase gives higher break-even : a price increase gives a higher break-even. A joint expense should never be included in a grant calculation

Use the dividend growth model : Use the dividend growth model. Then repeat using the CAPM if the expected return on the S&P is 13% and the risk-free rate is 7%

How common is teen and pre-teen suicide : 1. How common is teen and pre-teen suicide (please use current data)? Why are more of them choosing to take their lives?

Value management as sole measure of project performance : four of the main limitations with using earned value management as a sole measure of project performance.

Identify the type of sentence : Flying a small UA for long periods in hot summer temperatures or at high altitudes increases the susceptibility to dehydration

What will be the rate of return on investment : If the investors forecast accurately, what will be the rate of return on an investment in this bond over the next year?

User Account

All Pages