The total capital of W. Shoes Inc. is made up of debt and equity (ordinary shares)...

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The total capital of W. Shoes Inc. is made up of debt and equity (ordinary shares) of market values of GHe 1, 185 and GHe 2, 795. The cost of debt is 10.1% and the cost of equity is 11.5%. (a) Calculate the weighted average cost of capital. (b) If the tax rate is 25%, what is the present value of tax-savings? (c) Use the cost of capital computed in (a) to calculate the net present value of project A in question 3. (d) Does the NPV of project A you computed in (c) above become more positive or negative? State 3 reasons why. QUESTION 6: (a) If zero coupon bond of 15 years has a face value of GHe 1,000 and the discount rate is 11.5%, compute its current price. (b) Common shares of E. Resorts ltd. will grow at 15.9% for three years. The growth will drop to 8.5% and remain constant thereafter. It just paid a dividend of GHe 0.32. If the cost of equity is 13.1%, then compute its price. (c) Common shares of E. Resorts ltd. will grow at 8.5% forever. It just paid a dividend of GHe 0.32. If the cost of equity is 13.1%, then compute its price. (d) The firm has 17-year preference shares with a dividend rate of 9.7% with a par value of GHe 950. If the discount rate is 11.9%, what should be its fair value? The total capital of W. Shoes Inc. is made up of debt and equity (ordinary shares) of market values of GHe 1, 185 and GHe 2, 795. The cost of debt is 10.1% and the cost of equity is 11.5%. (a) Calculate the weighted average cost of capital. (b) If the tax rate is 25%, what is the present value of tax-savings? (c) Use the cost of capital computed in (a) to calculate the net present value of project A in question 3. (d) Does the NPV of project A you computed in (c) above become more positive or negative? State 3 reasons why. QUESTION 6: (a) If zero coupon bond of 15 years has a face value of GHe 1,000 and the discount rate is 11.5%, compute its current price. (b) Common shares of E. Resorts ltd. will grow at 15.9% for three years. The growth will drop to 8.5% and remain constant thereafter. It just paid a dividend of GHe 0.32. If the cost of equity is 13.1%, then compute its price. (c) Common shares of E. Resorts ltd. will grow at 8.5% forever. It just paid a dividend of GHe 0.32. If the cost of equity is 13.1%, then compute its price. (d) The firm has 17-year preference shares with a dividend rate of 9.7% with a par value of GHe 950. If the discount rate is 11.9%, what should be its fair value?

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Question 5 a To calculate the weighted average cost of capital WACC we need to weight the cost of debt and the cost of equity based on their respectiv... View the full answer