Johnson is a financial analyst at Investin, a management firm. His manager has asked him to...

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Johnson is a financial analyst at Investin, a management firm. His manager has asked him to compute the WACC of a company, Dodo Ltd. His research indicates that the company has a target capital structure of 40% debt and 60% equity. Johnson also finds that bonds of the company have a face value of $1000 and pay a semi annual coupon rate of 10%. These bonds mature in 20 years and sell for $849.54 with a yield to maturity of 12%. a. The risk free rate and the market risk premium are at s 10% and at 5% respectively. The company has a stock beta of 1.2. Assuming a marginal tax rate of 40%, compute the WACC for Johnson. b. Moreover, he finds that the firm is a constant growth firm that has just paid a dividend of $2. The share of the company is quoted at $27 and Johnson's calculations indicate that the firm has a growth rate of 8%. compute the WACC for Johnson. Johnson is a financial analyst at Investin, a management firm. His manager has asked him to compute the WACC of a company, Dodo Ltd. His research indicates that the company has a target capital structure of 40% debt and 60% equity. Johnson also finds that bonds of the company have a face value of $1000 and pay a semi annual coupon rate of 10%. These bonds mature in 20 years and sell for $849.54 with a yield to maturity of 12%. a. The risk free rate and the market risk premium are at s 10% and at 5% respectively. The company has a stock beta of 1.2. Assuming a marginal tax rate of 40%, compute the WACC for Johnson. b. Moreover, he finds that the firm is a constant growth firm that has just paid a dividend of $2. The share of the company is quoted at $27 and Johnson's calculations indicate that the firm has a growth rate of 8%. compute the WACC for Johnson.

Answer rating: 100% (QA)

To compute the Weighted Average Cost of Capital WACC for Dodo Ltd we need to calculate the cost of d... View the full answer