AMTRAK is considering building a new train line from Whosville to Almost There. Use the following...
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AMTRAK is considering building a new train line from Whosville to Almost There. Use the following information to help AMTRAK determine their cost of capital to assess the project: Debt totals $250 million with a 5% coupon, issued 3 years ago and is now trading at 101.8 Common stock (30 million shares outstanding) now trades at $25 per share The common stock will pay an annual dividend of $1.30 this year, and is growing at 2% per year AMTRAK pays a corporate tax rate of 25%. The risk-free rate is 2%, the excess market return is 8% AMTRAK's common stock Beta is 1.07 a. What debt and equity weights will AMTRAK use to calculate WACC? b. What is AMTRAK's cost of debt? c. What is AMTRAK's cost of common equity? d. What is AMTRAK's WACC? e. Under what circumstances might it make sense for AMTRAK to make the investment if it returns less than their cost of capital (WACC)? AMTRAK is considering building a new train line from Whosville to Almost There. Use the following information to help AMTRAK determine their cost of capital to assess the project: Debt totals $250 million with a 5% coupon, issued 3 years ago and is now trading at 101.8 Common stock (30 million shares outstanding) now trades at $25 per share The common stock will pay an annual dividend of $1.30 this year, and is growing at 2% per year AMTRAK pays a corporate tax rate of 25%. The risk-free rate is 2%, the excess market return is 8% AMTRAK's common stock Beta is 1.07 a. What debt and equity weights will AMTRAK use to calculate WACC? b. What is AMTRAK's cost of debt? c. What is AMTRAK's cost of common equity? d. What is AMTRAK's WACC? e. Under what circumstances might it make sense for AMTRAK to make the investment if it returns less than their cost of capital (WACC)?
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AMTRAK Cost of Capital Calculations a Debt and Equity Weights Calculate the market value of debt Market value of debt Price per bond Number of bonds M... View the full answer
Related Book For
Managerial economics applications strategy and tactics
ISBN: 978-1439079232
12th Edition
Authors: James r. mcguigan, R. Charles Moyer, frederick h. deb harris
Posted Date:
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