refer to the following information and provide the weighted average cost of capital (WACC). Category Rate...

refer to the following information and provide the weighted average cost of capital (WACC).

Category	Rate (%)	Amount ($)	Annual Cost
Current Liabilities, Except Bank Debt	0%	650,000
Notes Payable to Banks, Short-Term	12%	230,000
Long-Term Debt	8%	245,000	18,000
Lease Contracts	14%	205,000
Loans from Shareholders	8%	1,200,000
Stockholders' Equity		1,875,000	12,000
Totals

Expert Solution

jeff jeffy answered 1 month ago

The weighted average cost of capital (WACC) is calculated as the weighted average of cost of...

The weighted average cost of capital (WACC) is calculated as the weighted average of cost of component capital, including debt, preferred stock and common equity. In general, debt is less expensive than equity because it is less risky to the investors. Some managers may intend to increase the usage of debt, therefore increase the weight on debt (Wd). Do you think by increasing the weight on debt (Wd) will reduce the WACC infinitely? What are the benefits and costs of...

What is Weighted Average Cost of Capital (WACC)?

Charlotte's Crochet Shoppe has 14,300 shares of common stock outstanding at a price per share of $75 and a rate of return of 11.61%. The company also has 280 bonds outstanding, with a par value of $2000 per bond. The pre-tax cost of debt is 6.13% and the bonds sell for 97.2% of the par. What is the weighted average cost of capital (WACC), if the tax rate is 40%?

A firm’s weighted average cost of capital (WACC) is used as the discount rate to evaluate...

A firm’s weighted average cost of capital (WACC) is used as the discount rate to evaluate various capital budgeting projects. However, remember the WACC is an appropriate discount rate only for a project of average risk. Analyze the cost of capital situations of the following company cases, and answer the specific questions that finance professionals need to address. Consider the case of Fuzzy Button Clothing Company Fuzzy Button Clothing Company has a target capital structure of 58% debt, 6% preferred...

1. The Weighted Average Cost of Capital (WACC) is a. the rate at which a company’s future...

1. The Weighted Average Cost of Capital (WACC) is a. the rate at which a company’s future cash flows need to be discounted b. to arrive at a present value for the business. c. all of the above reflect the WACC d. the value of a company equals the present value of its future cash flows 2. Flotation Cost is a. the cost for servicing equity capital b. the cost for using debt capital c. the cost for using retained earnings d....

The weighted average cost of capital (WACC) is used as the discount rate to evaluate various...

The weighted average cost of capital (WACC) is used as the discount rate to evaluate various capital budgeting projects. However, it is important to realize that the WACC is an appropriate discount rate only for a project of average risk. Consider the case of Turnbull Company. Turnbull Company has a target capital structure of 58% debt, 6% preferred stock, and 36% common equity. It has a before-tax cost of debt of 8.20%, and its cost of preferred stock is 9.30%....

20. Weighted Average Cost of Capital (WACC) primarily focused on: A.definition of “Weighted Average Cost of...

20. Weighted Average Cost of Capital (WACC) primarily focused on: A.definition of “Weighted Average Cost of Capital“ (WACC) and concept of costs of equity B.and debt, method of calculation C.WACC use in corporate financial management D. factors that affect the cost of equity and debs E. nature of costs of equity and debt calculation using the CAPM model 21. Business risks and their typology with focus on: A.risk classification criteria and their categorization according to the industry of the enterprise...

Does the Weighted Average Cost of Capital (WACC) account for demand?

17 Given the following data, compute the weighted average cost of capital (WACC). Components of capital...

17 Given the following data, compute the weighted average cost of capital (WACC). Components of capital structure After Tax Cost Debt $65 million 6.5% Preferred Stock 35 million 10.5% Common Equity 60 million 12.75% Total 160 million If the return on assets of the corporation is 13% on an annual basis, calculate its profitability and economic value added, EVA.

What does the “weight” refer to in the weighted average cost of capital?

The weighted average cost of capital (WACC) is an important tool for the capital structure. Go...

The weighted average cost of capital (WACC) is an important tool for the capital structure. Go to the website Yahoo! Industry Summary and look at Facebook Inc. and Alphabet Inc. Calculate the WACC for the two firms. How do the WACCs compare? Are the WACCs what you would expect? What causes the differences between the two firms’ WACCs?

Question