User Account

All Pages

What would its WACC be

Assignment Help Accounting Basics
Reference no: EM132624297

Question - Ccaracal ltd is comparing different capital structures. The management of the company needs to compare the WACC of the different financing options at its disposal. Specifically there is a need to compare the WACC's of the two options it is considering. The first option is to borrow funds while the second option is to raise equity. The company has a target D/E ratio of 0.45 which it intends to revert to as soon as possible while it's current D/E is 0.50. Currently the company has a beta of 1.5. The tax rate is the risk free rate 7% and the market risk premium 6%. A very similar company recently issued bonds with a YTM of 10%. The company has R15 00 in total assets R5000 in total liabilities with a book cost of 5% and has R10 000 in equity. The company currently had EBIT of R1000 which it expects to stay the same for the foreseeable future. R5000 will be raised either by debt or equity. If debt is raised the company expects to issue bonds at a market related YTM with a coupon rate of 10%. If the company chose to use debt financing. What would it's WACC be?

A. 10.00%

B. 13.33%

C. 18.34%

D. 45.00%

Reference no: EM132624297

Questions Cloud

Why do firms experience evolutionary cycles : Why do firms experience evolutionary cycles in which there is fit between strategy and structure,
What amount should sheridan report as cost of goods sold : The balance in the LIFO Reserve account at the end of 2020 was $327000. What amount should Sheridan report as Cost of Goods Sold
Identify the accounts that are at risk : Identify the accounts (balance sheet and income statement) that are at risk of material misstatement for Biggest Bargains? Explain why they are at risk
Business-industry and management review : A review of the business, industry and management are critical aspects in the overall evaluation of a company. Were there any deficiencies in management ability
What would its WACC be : Currently the company has a beta of 1.5. The tax rate is the risk free rate 7% and the market risk premium 6%. What would its WACC be
Prepare a correct statement of profit or loss for the month : Electricity expense $576. In reviewing the statement, you discover: Prepare a correct statement of profit or loss for the month of July 2017
Discuss the cage distance framework : Discuss the CAGE Distance Framework that firms should consider when choosing which foreign markets to enter.
How situation be reflected in annual financial statements : If the market price for jet fuel at the end of the year is $4.25, how would this situation be reflected in the annual financial statements
Prepare Bonita journal entries for the initial transaction : The implied interest rate is 10%. Prepare Bonita's journal entries for the initial transaction, recognition of interest each year

Reviews

Write a Review

Accounting Basics Questions & Answers

  Determine the division of net income

Prepare a worksheet to determine the division of net income if the net income was (a)$200,000 / (b)$300,000

  Record the disposal under the given assumptions

Pina Colada Co. has equipment that cost $81,500 and that has been depreciated $50,200. Record the disposal under the following assumptions

  Compute the total selling expenses for the month

miscellaneous selling expenses are $2,101 plus 1/2 of 1% of sales. What are the total selling expenses for the month of January

  A company had stock outstanding as follows during each of

a company had stock outstanding as follows during each of its first three years of operations 2000 shares of 10 100 par

  Calculate cost of debt cost of new common stock

Calculate cost of debt, cost of new common stock, cost of preferred stock and cost of retained earnings.

  Audit report project

1. Access the SEC EDGAR database (www.sec.gov) and retrieve Apple's 2015 3rd Quarter. Extract the financial statements and update the excel spreadsheet.  Project the income statement and balance sheet for year-end 2015.

  Periodic inventory system

If a company uses the periodic inventory system, what is the impact on the current ratio of including goods in transit f.o.b. shipping point in the Purchases account and not in the Inventory account?

  A salesperson and the sales force perform in marketing

13-1. Describe the roles a salesperson and the sales force perform in marketing. (AACSB: Written and Oral Communication; Reflective Thinking) 13-2. Compare and contrast the three sales force structures outlined in the chapter.

  Compute the number of units available for sale

Compute the number of units available for sale - Compute the number of units in ending inventory and Compute the cost assigned to ending inventory using (a) FIFO, (b) LIFO, and (c) weighted average. (Round the average cost per unit to 2 decimal pla..

  Describe the accounting treatment for net operating losses

Describe the accounting treatment for net operating losses. Discuss the arguments for and against interperiod tax allocation.

  Calculate the Basic earnings for Fitzgerald Pharmaceutical

For the fiscal year ended June 30, 2012, calculate the Basic and Diluted earnings per share for Fitzgerald Pharmaceutical Industries

  How much of the accounting department costs allocated

The costs will be allocated based on the number of employees using the direct method. How much of accounting department costs will be allocated to production

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