A firm has the following capital structure: 1. Bonds with market value of $6000,000 2. Preferred...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
A firm has the following capital structure: 1. Bonds with market value of $6000,000 2. Preferred Stock with a market value of $1,000,000 3. Common stock, of which 175,000 shares is outstanding. Presently, each common stock is selling at $69.50 per share T The preferred stock price per share is $70 and pays a $5 dividend. Common stock shares sell for $69.50 and pay a $2 dividend. Dividends for common stock are expected to grow by 1%. Bond price is $951.53 and the bond coupon rate is 6.0%. The bonds mature in 5 years. The firm's tax rate is 38%. The company has $3,000,000 in sales, and expenses of $2,300,000. The initial investment of $5,500,000 will be depreciated straight-line over 10 years. The project is expected to last 10 years. 1. What is the firm's Weighted Average Cost of Capital (WACC)? 2. What is the firm's Operating Cash Flow (OCF)? 3. Using the WACC is the NPV, using the WACC (use the answer from question I above), and OCF (use the answer from question 2 above)? 4. Based on your answer to question #3, would you accept or reject the project? Explain why? A firm has the following capital structure: 1. Bonds with market value of $6000,000 2. Preferred Stock with a market value of $1,000,000 3. Common stock, of which 175,000 shares is outstanding. Presently, each common stock is selling at $69.50 per share T The preferred stock price per share is $70 and pays a $5 dividend. Common stock shares sell for $69.50 and pay a $2 dividend. Dividends for common stock are expected to grow by 1%. Bond price is $951.53 and the bond coupon rate is 6.0%. The bonds mature in 5 years. The firm's tax rate is 38%. The company has $3,000,000 in sales, and expenses of $2,300,000. The initial investment of $5,500,000 will be depreciated straight-line over 10 years. The project is expected to last 10 years. 1. What is the firm's Weighted Average Cost of Capital (WACC)? 2. What is the firm's Operating Cash Flow (OCF)? 3. Using the WACC is the NPV, using the WACC (use the answer from question I above), and OCF (use the answer from question 2 above)? 4. Based on your answer to question #3, would you accept or reject the project? Explain why?
Expert Answer:
Answer rating: 100% (QA)
To calculate the firms Weighted Average Cost of Capital WACC we need to determine the weight of each component in the capital structure and the cost o... View the full answer
Related Book For
Intermediate Accounting
ISBN: 978-0324592375
17th Edition
Authors: James D. Stice, Earl K. Stice, Fred Skousen
Posted Date:
Students also viewed these accounting questions
-
Stores (Wal-Mart) is the largest retailing firm in the world. Building on a base of discount stores, Wal-Mart has expanded into warehouse clubs and Supercenters, which sell traditional discount store...
-
Walmart Stores, Inc. (Walmart) is the largest retailing firm in the world. Building on a base of discount stores, Walmart has expanded into warehouse clubs and Supercenters, which sell traditional...
-
Firm last paid a dividend of 120 cents. The dividends are expected to grow by 14% during the first 3 years of super normal growth when cost of equity is 20%. Thereafter, dividends grow at a rate of...
-
PepsiCo, Inc.s financial statements are presented in Appendix B. Financial statements of The Coca-Cola Company are presented in Appendix C. The complete annual reports of PepsiCo and Coca-Cola,...
-
Why are predetermined cost driver rates used when recording job costs?
-
Given f(x) 2 = x + 4x 2, - A) Fill in the table of values by finding the output for each of the inputs. x -2 0 3 f(x) |-7 -2 19 B) Graph the function based on the top two rows of points from the...
-
The 200-kg block \(D\) is dropped from rest at a height \(h=1 \mathrm{~m}\) onto end \(C\) of the A992 steel W200 \(\times 36\) overhang beam. If the spring at \(B\) has a stiffness \(k=200...
-
At the beginning of the current period, Griffey Corp. had balances in Accounts Receivable of $200,000 and in Allowance for Doubtful Accounts of $9,000 (credit). During the period, it had net credit...
-
In 2023, Laureen is currently single. She paid $2,440 of qualified tuition and related expenses for each of her twin daughters Sheri and Meri to attend State University as freshmen ($2,440 each, for...
-
Use Nodal Analysis to find Vx, in the circuit. 202 4A -2 A Va VB 50 N 40 2 100 2 25 2 10 A
-
From January to June, the monthly returns for FIN Company were 4%, -2%, 3%, 6%, -2%, and 8% respectively. What is standard deviation of the monthly returns of FIN Company? O 4.12% O 3.98% O 2.65%...
-
Explain the difference between stock, bond, and fund. Your response should be a minimum 200-600 words. Apply this principle to your life. Do you currently invest or do you plan to invest in the...
-
What are two main criteria for setting goals? What is the danger of setting goals that are not realistic
-
Marthastarts saving for her retirement by making monthly deposits into a retirement account whose annual rate is 3.9%.She plans to retire in29 years with an amount of money that has the same buying...
-
Compute the present value of an annuity in which hourly payments (8760 each year) of $0.41 are made for 3 years at an annual rate of 1.2%.
-
Explain the following terms: incremental cash flow, sunk cost, opportunity cost, and cannibalization. Explain the difference between a project's physical life and its economic life and why...
-
List the components of GDP in the output (expenditures) approach. 2. Please calculate the growth rate based on the following information: U.S. GDP 2023 = 19.1 trillion dollars U.S. GDP 2022 = 18.8...
-
A routine activity such as pumping gasoline can be related to many of the concepts studied in this text. Suppose that premium unleaded costs $3.75 per gal. Work Exercises in order. Use the...
-
As of January 1, 2011, the company decided to change from the LIFO method of inventory valuation to the FIFO method. The change is being made for both book and tax purposes. Data for the past four...
-
In 1998, then-SEC Chairman Arthur Levitt gave a speech in which he identified five techniques of accounting hocus-pocus. List those five techniques.
-
Faro Inc. began operating on January 1, 2011. At the end of the first year of operations, Faro reported $400,000 income before income taxes on its income statement but only $320,000 taxable income on...
-
Find the flexibility and stiffness influence coefficients of the torsional system shown in Fig. 6.28. Also write the equations of motion of the system. (GJ)1 01 Compressor (GJ)2 (Jan) Turbine (142)...
-
Derive the flexibility matrix of the system shown in Fig. 5.42. 00000 2m 8(t) * 2m ellee x(t) m 00000 FIGURE 5.42 Rigid bar connected to masses and springs.
-
Derive the stiffness matrix of the system shown in Fig. 5.39. mo e(t) ellee k1 k2 lllll m x(t) FIGURE 5.39 Mass hanging from a pulley.
Study smarter with the SolutionInn App