User Account

All Pages

What is the firm wacc and total corporate value

Assignment Help Finance Basics
Reference no: EM132842773

West Coast Industries currently has a capital structure, based on market values of 50% debt. The debt is a bond issued with a 4.5% coupon rate. The firm's EBIT is $12 million and it's tax rate is 15%. WCI can change its capital structure by either increasing it's debt to 70% (based on market values) or decrease it to 35%. If WCI decides to increase its use of leverage, it must call in its old bonds and replace them with new bonds that have a 6.5% coupon rate. The company will either sell or repurchase stock at the new equilibrium price to complete the change in its capital structure.

The firm pays out all earnings as dividends,- hence, its stock is a zero-growth stock. The current cost of equity is 10%. If it increases leverage, their cost of equity would be 13%. If it decreases leverage the cost of equity would be 10.5%. What is the firm's WACC and total corporate value under each capital structure?

Reference no: EM132842773

Questions Cloud

How did rapid expansion of the US economy pave the way : How did rapid expansion of the U.S. economy during the 1920s pave the way for the stock market crash of 1929 and Great Depression of the 1930s?
Calculate the project npv based on a 5 year life : Robo Cash is considering introducing a new line of higher end produces. Below are the company's forecast of financial data for the new products.
How has equality of opportunity changed power dynamics : How do these both affect "equality of opportunity" in today's workplace? How are "power dynamics" evident in today's workplace?
Journalize the entries to record the liquidation : Journalize the entries to record the liquidation outlined below, using Assets as the account title for the noncash assets and Liabilities
What is the firm wacc and total corporate value : If it decreases leverage the cost of equity would be 10.5%. What is the firm's WACC and total corporate value under each capital structure?
Explaining why you think certain areas are strengths : As mentors and coaches, you will support teachers and staff throughout their process of inquiry. It is important that you plan and are prepared when checking.
What impact has reconstruction had on workplaces today : What impact has Reconstruction and the Civil War had on workplaces today? How does the term, "equality of opportunity" relate to this impact on the workplace?
What is the duration of bond : Assume a 3-year Euro-note, with a $100,000 face value, a coupon rate of 10% and a convexity of 4.53. Today's YTM is 11.5%. Coupon frequency and compounding freq
How would handle case as either the defense or prosecutor : For the written assignment, explain whether you think the case was fair and how you would handle the case as either the defense or prosecutor?

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

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!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd