Calculate the wacc and irr, Financial Management

Assignment Help:

The capital structure of Wild West Inc. is as follows:

Debts: $5,000,000 (face value) bonds with coupon rate at 8.00% and current price at par
Preferred shares: $2,000,000 (face value) paying 5% dividends which is trading at 95 percent
Common shares: Current stock price at $5 per share with 1,000,000 shares issued and outstanding. The risk-free rate is 5%, the market risk premium is 6%, and the beta of Wild West Inc. is 1.15
Marginal tax rate is 40%

Show your calculation

a. Calculate the WACC for Wild West Inc.

b. Should Wild West Inc. accept an IRR of 7% new project which is of similar risk as all the existing projects of the Big Plan? Why and why not?

c. Should Wild West Inc. accept an IRR of 12% new project which is considered 30% higher in risk as compared with all the existing projects of the Big Plan? Why and why not?

Related Discussions:- Calculate the wacc and irr

Rejecting proposed projects when using internal rate of retu, What is the d...

What is the decision rule for accepting or rejecting proposed projects when using internal rate of return? Whenever the internal rate of return is equal or greater than to the

Advantage of profitability index method, Q. Advantage of Profitability Inde...

Q. Advantage of Profitability Index method? Advantage of PI method:- (i) Similar to the other DCF techniques the PI method as well takes into account the time value of money

Loan schedules - fixed vs floating, Consider a mortgage example to nance ...

Consider a mortgage example to nance the purchase of a house or flat. You may use a real example or create a ctitious one. Search for dierent types of mortgages currently on oe

Operating cycles, use the operating cycle to formulate a broiler business

use the operating cycle to formulate a broiler business

The us pension fund system, The US Pension Fund System The US corporate...

The US Pension Fund System The US corporate pension system has matured along with the country's demographic cycle. It consists of both defined benefit plans and defined contrib

Time Value of Money, Two years ago, Randburg Ltd needed to accumulate a tot...

Two years ago, Randburg Ltd needed to accumulate a total of R250000 by the end of 5 years to acquire new imported machinery. To do so Randburg Ltd makes quarterly-annual deposits i

Option based valuation approach, When an investor purchases non-calla...

When an investor purchases non-callable or non-putable convertible bonds, he would be buying a non-callable/non-putable straight security and also buying a call o

Definition of financial management, DEFINITION OF FINANCIAL MANAGEMENT ...

DEFINITION OF FINANCIAL MANAGEMENT Financial Management is a stream concerned with the generation and allotment of scarce resources (generally funds) to the most proficient use

Disclosures of primary and derivative financial instruments, Assignment Ins...

Assignment Instructions You are to survey the annual reports of five listed companies in the extractive industry sector from ASX or other sources for the most recent year possib

Consumer advisory panel (cap) of asic, Consumer Advisory Panel (CAP) of ASI...

Consumer Advisory Panel (CAP) of ASIC It was established in 1998. Its role is to advise ASIC on current consumer protection issues and give feedback on ASIC policies and activi

Write Your Message!

Name

Email id

Message

Verfication Code

User Account

All Pages