User Account

All Pages

What would be the firm weighted average cost of capital

Assignment Help Financial Accounting
Reference no: EM132760313

Consider that you are the CEO of Bubbles Star Ltd. You have decided to change the composition of your firm's capital structure, and are evaluating how much your company can afford to borrow.

  • There are currently 7.5 million shares outstanding in your firm and the market price is £100 per share. The market value of the firm's outstanding debt is currently £200 million. You are rated presently as BBB.
  • The stock of the firm has a beta of 1.45. The risk-free rate is 5%. The firm faces a marginal tax-rate of 35%. The market premium is equal to 6%.
  • You estimate that if you borrow £100 million more, the rating of your company will change to B. The current BBB rate is 10% while the B rate is 12%.

Problem a) What would be the firm's weighted average cost of capital after the additional borrowing?

Reference no: EM132760313

Questions Cloud

What is the net present value of the project : Dog Up! Franks is looking at a new sausage system with an installed cost of $411,500. This cost will be depreciated straight-line to zero over the project's.
What is the firms after-tax cost of borrowing : A tax rate of 30% and no preferred stock outstanding. If the firm is made up of 50% debt and 50% equity, what is the firms after-tax cost of borrowing.
How much of the service department costs allocated : How much of the service department costs allocated to Machining and Assembly in the direct method should be allocated to Job CM-22? How much should be allocated
What the firm would blank the portfolio beta : The firm's levered beta is equal to 1.20. When added to a well-diversified portfolio that matches the market beta, the firm would blank the portfolio beta.
What would be the firm weighted average cost of capital : Consider that you are the CEO of Bubbles Star Ltd. What would be the firm's weighted average cost of capital after the additional borrowing?
What is its wacc : Loran Chalices Inc. hired you as a consultant to estimate the company's WACC. You have obtained the following information. The company's noncallable bonds.
What will be the effect on the company eps and pe ratio : EasyBet Corporation is evaluating an extra dividend, What will be the effect on the company's EPS and PE ratio under the two different scenarios?
Which is likely to lead to an increase in firm cost of debt : Which is likely to lead to an increase in a firm's cost of debt financing? increase in the average age of debt financing. / increse in expected inflation
Which investment has the highest present value : You can purchase $2,000 of stock in a company. You estimate that this company will earn a total of $10,000 during its life. You expect the company to pay all.

Reviews

Write a Review

Financial Accounting Questions & Answers

  An alternative practice structure can best be described

An alternative practice structure can best be described as: PwC's actions in their audits of Avon and Pinnacle were similar in that the SEC alleged that the firm: The KBC Solutions case deals with:

  Find the wacc is for evenflow power co

Find the WACC is for Evenflow Power Co. 2,500 7 percent coupon bonds outstanding, $1,000 par value, 18 years to maturity, selling for 103 percent of par

  When the company uses the allawence method to account

When the company uses the allawence method to account for uncollectable account only involves balance sheet account discuss with an example.

  How to indicate range of possible prices that hastings bid

How to Indicate range of possible prices that Hastings could bid for each share of Vandell common stock in acquisition. Round your answers to the nearest cent

  Open t accounts and post to the shareholders equity account

Prepare the shareholders' equity section of the statement of financial position at December 31. Open T accounts and post to the shareholders' equity accounts.

  What is the? firm debt? ratio

Dearborn Supplies has total sales of $204 ?million, assets of $91 ?million, a return on equity of 27 ?percent, What is the? firm debt? ratio

  Calculate the price weighted index returns

Calculate the price-weighted index returns for the periods ending in 1 and 2. - Calculate the value-weighted index returns for the periods ending in 1 and 2.

  Determine the amount of foreign tax credit eastwood

Determine the amount of foreign tax credit Eastwood will be allowed to take in determining its US tax liability in each of the three years.

  Record income taxes payable and income tax expense

The accounting records of Shinault Inc. show the following data for 2014. 1. Life insurance expense on officers was $8,400. Equipment was acquired in early January for $341,100. Straight-line depreciation over a 5-year life is used, with no salvage v..

  Prepare journal entry that reflects revaluation on december

Prepare the journal entry that reflects the revaluation on December, Year 13. Year 14 determined that the fair value of scoop was $76,000

  What would be the firm levered cost of capital

The firm is considering a new capital structure with 35 percent debt. The interest rate on the debt would be 6 percent. What would be the firm's levered cost

  Motivator in the workplace is usually money

Discuss whether a company can outsource core business activities and still be successful. Explain your reasoning. The best motivator in the workplace is usually money versus The best motivator in the workplace is usually not money. discuss it in deta..

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