Question

In: Finance

What is the WACC for a firm using 55% equity with a required return of 35%

What is the WACC for a firm using 55% equity with a required return of 35%, 15% debt with a required return of 8%, 10% preferred stock with a required return of 10%, and a tax rate of 35%?



11.07%



15.72%



21.03%



10.72%

Solutions

Expert Solution

WACC = Weights * costs

WACC = 0.55*0.35 + 0.15*0.08*(1 - 0.35) + 0.1*0.1

WACC = 0.1925 + 0.0078 + 0.01

WACC = 0.2103 or 21.03%

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

Determine the expected return on equity for a firm with a WACC of 12%, $500,000 in...
Determine the expected return on equity for a firm with a WACC of 12%, $500,000 in 9% debt, and $800,000 in equity. Both debt and equity are shown at market values, and the firm pays no taxes. How can the expected return on equity be reduced?
A stock has a return on equity of 5.7% and a plowback ratio of 55%. What...
A stock has a return on equity of 5.7% and a plowback ratio of 55%. What is the sustainable growth rate? Enter you answer as a percentage. Do not include the percentage sign in your answer. Enter your response below rounded to 2 DECIMAL PLACES.
Bluegrass Mint Company has a debt-equity ratio of .35. The required return on the company’s unlevered...
Bluegrass Mint Company has a debt-equity ratio of .35. The required return on the company’s unlevered equity is 13.6 percent and the pretax cost of the firm’s debt is 7.4 percent. Sales revenue for the company is expected to remain stable indefinitely at last year’s level of $20,500,000. Variable costs amount to 70 percent of sales. The tax rate is 24 percent and the company distributes all its earnings as dividends at the end of each year.    a. If...
Bluegrass Mint Company has a debt-equity ratio of .35. The required return on the company’s unlevered...
Bluegrass Mint Company has a debt-equity ratio of .35. The required return on the company’s unlevered equity is 12.7 percent and the pretax cost of the firm’s debt is 6.5 percent. Sales revenue for the company is expected to remain stable indefinitely at last year’s level of $19,600,000. Variable costs amount to 65 percent of sales. The tax rate is 25 percent and the company distributes all its earnings as dividends at the end of each year. a. If the...
A firm currently finances its operations with $50M of equity at a required return of 15%...
A firm currently finances its operations with $50M of equity at a required return of 15% and $50M of bonds at an annual coupon rate of 9%. The firm is considering issuing another $10M of bonds (with the same coupon rate) to retire some equity. (A) What is the firm’s current cost of capital? What do you expect firm’s cost of capital to be after the recapitalization? (B) What do you expect the firm’s cost of equity to be after...
What are the implications for a company's WACC and Minimum Required Free Cash Flow Return on...
What are the implications for a company's WACC and Minimum Required Free Cash Flow Return on Assets if a company only uses Equity capital to finance its investment in Total Assets?
As an equity analyst you are concerned with what will happen to the required return to...
As an equity analyst you are concerned with what will happen to the required return to Universal Toddler' stock as market conditions change. Suppose rRF = 5%, rM = 13%, and bUT = 1.8. Under current conditions, what is rUT, the required rate of return on UT Stock? Round your answer to two decimal places. % Now suppose rRF increases to 6%. The slope of the SML remains constant. How would this affect rM and rUT? I. rM will remain...
What should be proportion of common equity financing (Ws) in WACC computations for a firm with...
What should be proportion of common equity financing (Ws) in WACC computations for a firm with $50 million par value in bonds (debt) but these 4 years bonds with coupon rate 3% has a yield to maturity at 7.476%. The firm also has $50 million book value of equity but its stock price is selling at $50 and there are 2 million shares of stock outstanding? Tax rate is 35%. A. 29.8% B. 70.2% C. 60.5% D. 57.5% E. 42.5%
Required rate of return: As an equity analyst you are concerned with what  will happen to the...
Required rate of return: As an equity analyst you are concerned with what  will happen to the required return to Universal Toddler Industries’s stock as  market conditions change. Suppose r RF= 8%, r M= 12%, and b UTI= 1.4.   a. Under current conditions, what is r UTI , the required rate of return on UTI stock?   b. Now suppose r RF (1) increases to 9% or (2) decreases to 7%. The slope of the  SML remains constant. How would this affect r M...
What would you estimate to be the required rate of return for equity investors
What would you estimate to be the required rate of return for equity investors if a stock sells for $40 and just paid a $4.40 dividend that is expected to grow at a constant rate of 5%?7.6%12.0%16.5%16.0%
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT