You are the CFO of Java Express (JEX), Inc., a wholesale roaster and distributor of gourmet...
Fantastic news! We've Found the answer you've been seeking!
Question:
![You are the CFO of Java Express (JEX), Inc., a wholesale roaster and distributor of gourmet coffee. You are](https://dsd5zvtm8ll6.cloudfront.net/questions/2023/11/65670685cef3d_1701297501228.jpg)
![Assets Current assets Net plant, property, and equipment Total assets Liabilities and Equity Accounts payable](https://dsd5zvtm8ll6.cloudfront.net/questions/2023/11/656706956e350_7096567069567d39.jpg)
Transcribed Image Text:
You are the CFO of Java Express (JEX), Inc., a wholesale roaster and distributor of gourmet coffee. You are currently considering the purchase of a high-volume coffee roasting oven. To evaluate the feasibility of the roasting oven you plan to calculate the project's NPV and IRR using JEX's weighted average cost of capital (WACC) as the discount rate and hurdle rate, respectively. This seems reasonable because you believe that the riskiness of the roaster's cash flows is representative of JEX's overall risk. What is JEX's weighted average cost of capital (WACC)? Information about JEX's stock, existing bonds, and other information are below. JEX's balance sheet is provided on the next page. • Market value of JEX's stock = $12.50 per share • JEX has $1,000 par value, 20-year, 6.80% semiannual coupon bonds priced at $978.64. • JEX's stock beta = 1.05 3-month Treasury bill yield = 1.10% • Required return on S&P 500= 12.50% The firm's tax rate is 40%. Assets Current assets Net plant, property, and equipment Total assets Liabilities and Equity Accounts payable Accruals Current liabilities Long-term debt (30,000 bonds, $1,000 par value) Total liabilities Common stock (12,000,000 shares) Retained earnings Total shareholders' equity Total liabilities and shareholders' equity $ 35,000,000 100,000,000 $135,000,000 $ 10,000,000 9,000,000 $ 19,000,000 30,000,000 $ 49,000,000 36,000,000 50,000,000 86,000,000 $135,000,000 You are the CFO of Java Express (JEX), Inc., a wholesale roaster and distributor of gourmet coffee. You are currently considering the purchase of a high-volume coffee roasting oven. To evaluate the feasibility of the roasting oven you plan to calculate the project's NPV and IRR using JEX's weighted average cost of capital (WACC) as the discount rate and hurdle rate, respectively. This seems reasonable because you believe that the riskiness of the roaster's cash flows is representative of JEX's overall risk. What is JEX's weighted average cost of capital (WACC)? Information about JEX's stock, existing bonds, and other information are below. JEX's balance sheet is provided on the next page. • Market value of JEX's stock = $12.50 per share • JEX has $1,000 par value, 20-year, 6.80% semiannual coupon bonds priced at $978.64. • JEX's stock beta = 1.05 3-month Treasury bill yield = 1.10% • Required return on S&P 500= 12.50% The firm's tax rate is 40%. Assets Current assets Net plant, property, and equipment Total assets Liabilities and Equity Accounts payable Accruals Current liabilities Long-term debt (30,000 bonds, $1,000 par value) Total liabilities Common stock (12,000,000 shares) Retained earnings Total shareholders' equity Total liabilities and shareholders' equity $ 35,000,000 100,000,000 $135,000,000 $ 10,000,000 9,000,000 $ 19,000,000 30,000,000 $ 49,000,000 36,000,000 50,000,000 86,000,000 $135,000,000
Expert Answer:
Answer rating: 100% (QA)
Computing the cost of the capital 1 Cost of Debt Cost of Debt YTM 1 Tax rate Thus comp... View the full answer
Related Book For
Managerial Accounting Tools for Business Decision Making
ISBN: 978-1118856994
4th Canadian edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso, Ibrahim M. Aly
Posted Date:
Students also viewed these finance questions
-
What do you think about CEO Jeff Bezos' controversial approach to starting Amazon.com?What was the approach successful?
-
Last Sale Net Bid Ask Open Int Puts Last Sale Net bid Ask Vol Open Int 16Aug 155.00(1619H155-E) 6.45 0.75 6.95 7.25 9 16Aug 155.00(1619T155-E) 1.18 (0.75) 1.17 1.25 61 4505 16Aug 166.00(1619H160-E)...
-
You are the CFO of the Imaginary products co. the company provides the following information about is capital structure: Debt: the firm has 300,000 bonds outstanding with a par value of $1,000, pays...
-
Use Lagrange multipliers to find the maximum area of a rectangle inscribed in the ellipse (Figure 15): (-x,y) (x, y) 2 a2 b2 + J2 = 1 (x, y) (x, y) X
-
Consider the five strategies for fostering goal commitment (rewards, publicity, support, participation, and resources). Which of those strategies do you think is most effective? Can you picture any...
-
Discuss why audit committees are becoming popular and describe the areas that may fall under the remit of the audit committee.
-
What kinds of marketing research has the Y conducted? SWIM, LIFT, PLAYBUT ALSO DONATE: USING MARKETING RESEARCH TO REDEFINE THE YMCA Over the years, the YMCA has come to mean different things to...
-
Ashley has an individual medical expense insurance policy with a $1000 calendar-year deductible and a 20 percent coinsurance clause. Ashley had outpatient surgery to remove a bunion on her foot and...
-
should you purchase the bond at the current market price
-
Refer to the Lincolnville School District bus data. First, add a variable to change the type of engine (diesel or gasoline) to a qualitative variable. If the engine type is diesel, then set the...
-
Q1. AX Co. produces and sells one product and its forecast for the next financial year is as follows; $'000 $'000 Sales 100,000 units @ $8 800 Variable costs: Material 300 Labor 200 500 Contribution...
-
6.10 Long Div. and Comp Square Calculus - No Calculator Find the indefinite integral. 1. S 4x-34x+56x-21 4x-2 dx Mastery Check #2 1 dx 2. Sx-4x+5x x-4x+5 S S Name: Sienna Nono Date: 3-1-24 Period:...
-
How well are oncology firms leveraging digital technology to gain and sustain competitive advantage?
-
Axel and Brooklyn have agreed to buy a new vehicle. Brooklyn mentions that she is looking forward to getting a new SUV, so they have room for their dogs and kids. Axel mentions he thought they were...
-
Discuss how technology and human resources are needed to operate this facility in this behind the scenes look at this retailing giant. Support your opinion with research and/or key concepts covered...
-
4.2 At a given instant, a spacecraft is 500 km above the earth, with a right ascension of 300 and a declination of -20 relative to the geocentric equatorial frame. Its velocity is 10 km/s directly...
-
"Off-the-balance-sheet" financing transactions means that Select one: a. Capital budgets are properly authorized and approved. b. Obligations and commitments are recorded only in the statement of...
-
Write the general quadratic equation y2 - 8y - 4x + 28 = 0 in standard form. Determine the vertex, focus, and directrix of the parabola defined by this equation. Sketch a graph.
-
Kitchen Care Inc. (KCI) is a manufacturer of toaster ovens. To improve control over operations, the president of KCI wants to begin using a flexible budgeting system, rather than use only the current...
-
Longhead Manufacturing Inc. has three divisions that are operated as profit centres. Actual operating data for the divisions are as follows: Instructions (a) Calculate the missing amounts. Show your...
-
Valdez Company uses standards and budgets. For the year, estimated production of product X is 500,000 units. The total estimated costs for materials and labour are $1.3 million and $1.7 million,...
-
46. At the end ofYear 4, the city owed teachers $60,000 in vacation pay that had not been recorded. The assumption is that these vacations will be taken evenly over the next year. a. What is the...
-
45. Assume that the one component unit had program revenues of $30,000 and expenses of $42,000 and spent $10,000 for land during Year 4. However, it should have been handled as a blended com ponent...
-
43. On the first day ofYear 4, the city receives a painting as a gift that qualifies as a work of art. It has a 30-year life, is worth $15,000, and is being displayed at one of the parks. The...
![Mobile App Logo](https://dsd5zvtm8ll6.cloudfront.net/includes/images/mobile/finalLogo.png)
Study smarter with the SolutionInn App