User Account

All Pages

What would happen to the weighted average cost of capital

Assignment Help Accounting Basics
Reference no: EM132585511

Pedro's Plumbing has a number of retail outlets in the Ottawa area. The company's capital structure consists of $40,000,000 of long-term debt, which carries an interest rate of 8% (the tax rate is 25%), and $60,000,000 of equity, on which the shareholders expect a return of 20%.

Required:

Question a) Calculate the weighted average cost of capital.

Question b) If the company used $40,000,000 of surplus cash to repay the debt, what would happen to the weighted average cost of capital?

Question c) If the company borrowed an additional $40,000,000 and used it to pay the stakeholders a $40,000,000 dividend, what would happen to the weighted average cost of capital?

Reference no: EM132585511

Questions Cloud

How much capital company should invest in the project : How much capital company should invest in the project XYZ. Also explain how we decide sources of finance and capital structure a company?
What is ebt now with the existing credit policy : i. What is EBT now with the existing credit policy? Show your calculations
Why decision usefulness theory is important in normative : Why decision usefulness theory is important in Normative accounting ? When we generally defined security market is efficient?
What company should pay dividends to equity share holders : 7,00,000 Earnings before interest and tax (EBIT). You are required to decide whether or not company should pay dividends to its equity share holders.
What would happen to the weighted average cost of capital : An additional $40,000,000 and used it to pay the stakeholders a $40,000,000 dividend, what would happen to the weighted average cost of capital
Are policies that increase the value of the firm : In other words, are policies that increase the value of the firm (doing well) necessarily at odds with socially responsible policies (doing good)?
Example of the stock valuation technique using numbers : Step-by-step example of the stock valuation technique using numbers. Explain the stock valuation technique.
List of primary benefits of bond investing : List of primary benefits of bond investing. Explain each identified benefit.
Which is generally more valuable as security for a loan : Which is generally more valuable as security for a loan - real or personal property? Why?

Reviews

Write a Review

Accounting Basics Questions & Answers

  Green corporation a calendar year taxpayer had a deficit in

green corporation a calendar year taxpayer had a deficit in accumulated eampp of 250000 at the beginning of the current

  What is the breakeven point in units sold

If fixed costs are $1,500 and Variable costs per unit are $3.00 with a selling price of $10.00 per Unit, what is the breakeven point in units sold

  Unpredictable action of cash drawers

Solutions for (POS) slow printing of sales tickets and unpredictable action of cash drawers.

  Best rights for the purse

An employee of the restaurant, Jack, finds the purse and notifies the owner of the restaurant. Going in order from superior to inferior rights, who has the best rights for the purse?

  Determine the total amount of overhead cost assigned to

the expected activity for the year was distributed among the companys four products as follows expected activity

  Prepare a capital budget for the hot new cafe

Define payback period. Assume the company has a P/B (payback) policy of not accepting projects with life of over 3 years. Do you think the project should be accepted? Why?

  Prepare a memo to be sent to management notifying them

As the senior accountant, the Chief Financial Officer has asked you to prepare a memo to be sent to management notifying them of the delayed wage payments.

  Calculate the net realizable value

Calculate the net realizable value of Jantz's accounts receivable after the above two transactions have been recorded.

  Show the computation of the three ratios

The purpose of this SLP is to apply ratio analysis to assess the financial health of ABC Company. Use the income statement presented in the case during.

  Utech company bottles and distributes livit a diet soft

utech company bottles and distributes livit a diet soft drink. the beverage is sold for 50 cents per 16-ounce bottle to

  Axillar beauty products corporation is considering the

axillar beauty products corporation is considering the production of a new conditioning shampoo that will require the

  Big howies hot dog stand is a fast-food restaurant

big howies hot dog stand is a fast-food restaurant specializing in hot dogs and humburgers. the store employs 8

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