Royal Co. must decide whether to buy 1 buy equipment that is anticipated to provide a...

 

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Royal Co. must decide whether to buy 1 buy equipment that is anticipated to provide a 9% return and would be financed with debt Or 2. buy a new truck that would yield a 16% return and would be finance through common equity Calculate the weighted average cost of capital using the following information • Royal 10% $1,000 bond, is currently selling for $900, and has another 10 years Royal pays an annual dividend of $10. The preferred stock price is $100 • Royal expects to pay $4 dividend this year. The current stock price is $40 and is expected to grow by 8% Assume the capital structure of the company is Using book value weightings assume the capital structure is • Debt is 25% Preferred shares is 25% • Equity 50% a. Compute the weighted average cost of capital. (Round the final answer to 2 decimal place.) Weighted average cost of capital Debil Preferred Shares Common Shares and Retained Earnings Total weighted average cost of capital BV weight O Truck O Equipment 25% 25 % 50% b. Which project(s) should be accepted? Cost Weighted cost 0.00% Royal Co. must decide whether to buy 1 buy equipment that is anticipated to provide a 9% return and would be financed with debt Or 2. buy a new truck that would yield a 16% return and would be finance through common equity Calculate the weighted average cost of capital using the following information • Royal 10% $1,000 bond, is currently selling for $900, and has another 10 years Royal pays an annual dividend of $10. The preferred stock price is $100 • Royal expects to pay $4 dividend this year. The current stock price is $40 and is expected to grow by 8% Assume the capital structure of the company is Using book value weightings assume the capital structure is • Debt is 25% Preferred shares is 25% • Equity 50% a. Compute the weighted average cost of capital. (Round the final answer to 2 decimal place.) Weighted average cost of capital Debil Preferred Shares Common Shares and Retained Earnings Total weighted average cost of capital BV weight O Truck O Equipment 25% 25 % 50% b. Which project(s) should be accepted? Cost Weighted cost 0.00%

Answer rating: 100% (QA)

a To compute the weighted average cost of capital WACC you can use the following formula WACC Wd Rd ... View the full answer