The Easterbrook Electronics is known for the high quality of its stereo speakers internationally. It requires...

  

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The Easterbrook Electronics is known for the high quality of its stereo speakers internationally. It requires your assistance in determining the Weighted Average Cost of Capital. To determine the WACC, the following information is helpful: The cost of long term borrowing overall (Long term loan and Bonds) is 12%, and the Tax Rate is 30% The company issued preferred shares for $42 per share with flotation costs of $2 per share. A dividend of $3 per share is paid annually The company will determine the cost of equity using the CAPM model, which is based on the following information: Standard deviation of the market - Standard deviation of Easterbrook - Covariance T-bond rate - 3 month - Expected Market return - 5.00% 7.00% 37.5 4.00% 10.00% The Balance Sheet looks like this: Assets Cash Accounts Receivable Inventory Short Term Assets Machinery Buildings (Net of Depr.) Total Assets Easterbrook Electronics Balance Sheet 31 December, 2021 Liabilities 6,893 ST Bank Loan 13,759 Payables 40,873 61,525 Short Term Liabilities Bank Loan 49,650 Bonds Outstanding 250,975 Total Liabilities 362,150 Preferred Shares Retained Earnings Common Shares Total Equity Total Equity & Liabilities 11,947 39,965 51,912 35,975 85,643 173,530 30,000 75,975 82,645 188,620 362,150 Your first task: a) Calculate the Debt/Equity and working capital (current) ratios. What is your professional opinion, given that for the sector, the ratios are usually 0.8 and 1.1 respectively? Be as specific as possible. b) Calculate the WACC of the firm and explain what it is used for. How is this figure used by the investors and financial planners of the firm? The Easterbrook Electronics is known for the high quality of its stereo speakers internationally. It requires your assistance in determining the Weighted Average Cost of Capital. To determine the WACC, the following information is helpful: The cost of long term borrowing overall (Long term loan and Bonds) is 12%, and the Tax Rate is 30% The company issued preferred shares for $42 per share with flotation costs of $2 per share. A dividend of $3 per share is paid annually The company will determine the cost of equity using the CAPM model, which is based on the following information: Standard deviation of the market - Standard deviation of Easterbrook - Covariance T-bond rate - 3 month - Expected Market return - 5.00% 7.00% 37.5 4.00% 10.00% The Balance Sheet looks like this: Assets Cash Accounts Receivable Inventory Short Term Assets Machinery Buildings (Net of Depr.) Total Assets Easterbrook Electronics Balance Sheet 31 December, 2021 Liabilities 6,893 ST Bank Loan 13,759 Payables 40,873 61,525 Short Term Liabilities Bank Loan 49,650 Bonds Outstanding 250,975 Total Liabilities 362,150 Preferred Shares Retained Earnings Common Shares Total Equity Total Equity & Liabilities 11,947 39,965 51,912 35,975 85,643 173,530 30,000 75,975 82,645 188,620 362,150 Your first task: a) Calculate the Debt/Equity and working capital (current) ratios. What is your professional opinion, given that for the sector, the ratios are usually 0.8 and 1.1 respectively? Be as specific as possible. b) Calculate the WACC of the firm and explain what it is used for. How is this figure used by the investors and financial planners of the firm?

Answer rating: 100% (QA)

a Calcul ate the Debt Equ ity and working capital current ratios What is your professional opinion given that for the sector the ratios are usually 0 ... View the full answer