Business, 27.12.2020 15:20 TylerRaymond6299

You try to evaluate an investment project for a company. A firm uses $38 million of debt and $15 million of preferred stock. The current market price of common stock is $20 with 4,125,000 shares outstanding, which it has used recently to finance in a number of its recent operating asset purchases. If the before-tax cost of debt is 8% and its cost of preferred stock is 10%. The risk free rate is assume to be 5%, while the market risk premium is 8%, with an above market level firm beta of 1.25 (slightly more volatile than the market). Assume the corporate tax rate for this firm is 35%. a. Based on the information given, compute the WACC for the company.
b. If an investment project generates a return of 11% and has similar risk level as the overall company, would you accept this project? Why or why not?

Answers: 1

Show answers

Another question on Business

Business, 22.06.2019 02:30

On january 1, 2018, jay company acquired all the outstanding ownership shares of zee company. in assessing zee's acquisition-date fair values, jay concluded that the carrying value of zee's long-term debt (8-year remaining life) was less than its fair value by $21,600. at december 31, 2018, zee company's accounts show interest expense of $14,440 and long-term debt of $380,000. what amounts of interest expense and long-term debt should appear on the december 31, 2018, consolidated financial statements of jay and its subsidiary zee? long-term debt $401,600 $398,900 $401,600 $398,900 interest expense $17,140 $17,140 $11,740 $11,740 a. b. c. d.

Answers: 3

Answer

Business, 22.06.2019 03:10

Transactions that affect earnings do not necessarily affect cash. identify the effect, if any, that each of the following transactions would have upon cash and net income. the first transaction has been completed as an example. (if an amount reduces the account balance then enter with negative sign preceding the number e.g. -15,000 or parentheses e.g. (15, cash net income (a) purchased $120 of supplies for cash. –$120 $0 (b) recorded an adjustment to record use of $35 of the above supplies. (c) made sales of $1,370, all on account. (d) received $700 from customers in payment of their accounts. (e) purchased equipment for cash, $2,450. (f) recorded depreciation of building for period used, $740. click if you would like to show work for this question: open show work

Answers: 3

Answer

Business, 22.06.2019 10:50

Jen left a job paying $75,000 per year to start her own florist shop in a building she owns. the market value of the building is $120,000. she pays $35,000 per year for flowers and other supplies, and has a bank account that pays 5 percent interest. what is the economic cost of jen's business?

Answers: 3

Answer

Business, 22.06.2019 14:00

How many months does the federal budget usually take to prepare

Answers: 1

Answer

You know the right answer?

You try to evaluate an investment project for a company. A firm uses $38 million of debt and $15 mil...

Questions