What weights should mv corporation use in its wacc

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Reference no: EM133724354

Cost of Capital

Question 1 MV Corporation has debt with market value of $100million, common equity with a book value of $100million, and preferred stock worth $20million outstanding. Its common equity trades at $50per share, and the firm has 6.0million shares outstanding. What weights should MV Corporation use in its WACC?

Question 2 Avicorp has a $10.0 million debt issue outstanding, with a 6.0% coupon rate. The debt has semi-annual coupons, the next coupon is due in six months, and the debt matures in five years. It is currently priced at 95.00% of par value.
a. What is Avicorp's pretax cost of debt?
b. If Avicorp faces a 40% tax rate, what is its after-tax cost of debt?
Note: Assume that the firm will always be able to utilize its full interest tax shield.

Question 3 Steady Company's stock has a beta of 0.20. If the risk-free rate is 6.0% and the market risk premium is 7.0%, what is an estimate of Steady Company's cost of equity?

Question 4 HighGrowth Company has a stock price of $20. The firm will pay a dividend next year of $1.00, and its dividend is expected to grow at a rate of 4.0%per year thereafter. What is your estimate of HighGrowth's cost of equity capital?

Question 5 AllCity, Inc., is financed 40% with debt, 10% with preferred stock, and 50% with common stock. Its pretax cost of debt is 6%, its preferred stock pays an annual dividend of $2.50 and is priced at $30. It has an equity beta of 1.1. Assume the risk-free rate is 2%, the market risk premium is 7% and AllCity's tax rate is 25%. What is its after-tax WACC?

Question 6 Pfd Company has debt with a yield to maturity of 7.0%, a cost of equity of 13.0%, and a cost of preferred stock of 9.0%. The market values of its debt, preferred stock, and equity are $10.0
million, $3.0million, and $15.0million, respectively, and its tax rate is 25%. What is this firm's after-tax WACC?

Question 7 A retail coffee company is planning to open 100new coffee outlets that are expected to generate
$15.0million in free cash flows per year, with a growth rate of 3.0%in perpetuity. If the coffeecompany's WACC is 10.0%, what is the NPV of this expansion?

Reference no: EM133724354

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