WAAC = (% of debt) x (After-tax cost of debt) + (% of preferred stock) x...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
WAAC = (% of debt) x (After-tax cost of debt) + (% of preferred stock) x (Cost of preferred stock) + (% of Common equity) x (Cost of common equity) Plugging in the relevant values into the formula for WACC yields a WAAC of approximately Suppose that Mullens will only accept projects with an expected rate of return that exceeds the WAAC. Which of the following projects will Mullens accept? Check all that apply. Project 1 Project 2 Project 3 Project Cost 1 $3,500 2 $4,000 3 $3,750 Expected Rate of Return 41.00% 38.00% 44.00% Mullens estimates that it can issue debt at a rate of ra = 30.00% and a tax rate of T = 15.00%. It can issue preferred stock that pays a constant dividend of Dp = $15.00 per year and at Pp = $60.00 per share. Also, its common stock currently sells for Po = $7.50 per share. The expected dividend payment of the common stock is D₁ = $3.00 and the dividend is expected to grow at a constant annual rate of g = 10.00% per year. Mullens' target capital structure consists of w, = 70.00% common stock, wd = 15.00% debt, and wp = 15.00% preferred stock. The after-tax cost of debt is approximately The cost of preferred stock is approximately The after-tax cost of debt is approximately The cost of preferred stock is approximately The cost of common stock is approximately The WAAC is approximately Suppose that Mullens will only accept projects with an expected rate of return that exceeds the WAAC. Which of the following projects will Mullens accept? Check all that apply. Project 1 Project 2 Project 3 WAAC = (% of debt) x (After-tax cost of debt) + (% of preferred stock) x (Cost of preferred stock) + (% of Common equity) x (Cost of common equity) Plugging in the relevant values into the formula for WACC yields a WAAC of approximately Suppose that Mullens will only accept projects with an expected rate of return that exceeds the WAAC. Which of the following projects will Mullens accept? Check all that apply. Project 1 Project 2 Project 3 Project Cost 1 $3,500 2 $4,000 3 $3,750 Expected Rate of Return 41.00% 38.00% 44.00% Mullens estimates that it can issue debt at a rate of ra = 30.00% and a tax rate of T = 15.00%. It can issue preferred stock that pays a constant dividend of Dp = $15.00 per year and at Pp = $60.00 per share. Also, its common stock currently sells for Po = $7.50 per share. The expected dividend payment of the common stock is D₁ = $3.00 and the dividend is expected to grow at a constant annual rate of g = 10.00% per year. Mullens' target capital structure consists of w, = 70.00% common stock, wd = 15.00% debt, and wp = 15.00% preferred stock. The after-tax cost of debt is approximately The cost of preferred stock is approximately The after-tax cost of debt is approximately The cost of preferred stock is approximately The cost of common stock is approximately The WAAC is approximately Suppose that Mullens will only accept projects with an expected rate of return that exceeds the WAAC. Which of the following projects will Mullens accept? Check all that apply. Project 1 Project 2 Project 3
Expert Answer:
Answer rating: 100% (QA)
1 After Tax cost of debt Cost of debt Td x 1 tax rate T 10 x 1 2596 ie 10 1 025 Kd 10 ... View the full answer
Related Book For
Foundations of Financial Management
ISBN: 978-1259194078
15th edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen
Posted Date:
Students also viewed these finance questions
-
Colter Company prepares monthly cash budgets. Relevant data from operating budgets for 2020 are as follows. January February Sales $ 421,200 $ 468,000 Direct materials purchases 140,400 146,250...
-
The Shirt Shop had the following transactions for T-shirts for Year 1, its first year of operations. January 20 Purchased 580 units @ $ 9 = $5,220 Purchased 380 units @ $11 = 4,180 Purchased 460...
-
The estimated medical costs are expected to be $7,500 during an employee's retirement. The retiree is expected to pay 30% of the cost and Medicare is expected to pay 50% of the cost. What is the...
-
Look at the expansion joint in the photo of Figure 15.13. Would you say the photo was taken on a warm day or a cold day? Why?
-
A club charges a flat fee for an open bar (all-you-can-drink). Describe the moral-hazard problem.
-
Refer to Section 8.4.5 to develop a Java Web application, JavaWebOracleStudent, to query the Student Table in our sample Oracle database, CSE_DEPT, using JavaServer pages and the JSP implicit session...
-
Maxfli Hot Air Balloons, Inc., completed the following selected transac- tions during 2009: Requirement Record the transactions in the general journal. Feb. 9 Declared a cash dividend on the 10,000...
-
Donna Jamison, a 2003 graduate of the University of Florida with 4 years of banking experience, was recently brought in as assistant to the chairperson of the board of DLeon Inc., a small food...
-
7. Determine the future value of a loan of $1850 at 3.6%, compounded monthly for three years and Learning activity 4.5: Owning and operating a vehicle five years. How much money would you save if you...
-
J.D. Power and Associates surveys new automobile owners to learn about the quality of recently purchased vehicles. The following questions were asked in the J.D. Power Initial Quality Survey, May...
-
Phoenix has gotten herself in a bit of trouble with credit cards. The following are the current balances and interest rates on her credit cards: Visa: $6,750 at 19.8% APR MasterCard: $8,267 at 16.5%...
-
Simplify (248+10) - 7
-
On September 17, 2024, Ziltech, Incorporated, entered into an agreement to sell one of its divisions that qualifies as a component of the entity according to generally accepted accounting principles....
-
b) P(x) = (x3 + mx + 6x-3)+(x+3); remainder = -21 c) P(x) = (x4 - 3x3 + x + mx + 5) (2x-1); remainder = 47 16
-
Simplify. 31,5 3y 2x y 7 2
-
In this circuit, find Ir, In, I, Is, I4, Vi, V2, V3 and V4. VT = 6.0 V |R1=2.02 |R2=6.02 R3-200 R4=6.02
-
Java Inc. has a 15 year bond with liquidity premium of 0.9%, maturity risk premium of 1.2%. The bond yield is 9.8%. The real risk-free rate is 3.3% and average inflation for the period is 3.1% What...
-
Outline a general process applicable to most control situations. Using this, explain how you would develop a system to control home delivery staff at a local pizza shop.
-
Maxwell Communications paid a dividend of $3 last year. Over the next 12 months, the dividend is expected to grow at 8 percent, which is the constant growth rate for the firm (g). The new dividend...
-
Assume the following financial data for Rembrandt Paint Co. and Picasso Art Supplies: a. If all the shares of Rembrandt Paint Co. are exchanged for those of Picasso Art Supplies on a share-for-share...
-
Possible outcomes for three investment alternatives and their probabilities of occurrence are given next. Rank the three alternatives in terms of risk from lowest to highest (compute the coefficient...
-
Figure P18-39 shows two similar unit pulse waveforms. The only difference is that the first pulse is positive from \(-T / 2\) to \(T / 2\), while the second pulse goes from \(+\mathrm{A}\) to...
-
Describe the principal types of audits performed by independent auditors and indicate the established criteria and primary users of each tyr
-
Contrast the activities of independent, internal, and governmental auditors.
Study smarter with the SolutionInn App