Question
In: Finance
A company wants to build a new factory. They know the cost to build the factory...
A company wants to build a new factory. They know the cost to build the factory and have forecasted the future cash flows from the plant. They want to do an NPV analysis but are not sure what rate to use. They come to you as a consultant to figure out their cost of capital.
The information they have given you is:
They just paid a dividend of $2.75. Their dividend growth rate is 4.8%. Their current stock price is $32.00, and they have 1,808,000 shares outstanding.
They also have a beta of 1.16, the risk free rate is 3.01%, and the market risk premium is 5.24%.
They have 11,000 bonds outstanding with a coupon rate of 4.5%, 14 years to maturity, a face value of $1000 and a market price of $1,100. They are semiannual bonds.
Their corporate tax rate is 21%.
What is the debt to equity ratio?
What is the cost of equity?
What is the cost of debt?
What is the tax effected cost of debt?
What is the WACC?
Solutions
jeff jeffy answered 2 years agoRelated Solutions
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Mutton Motors wants to build a new factory. They know the cost
to build the factory and have forecasted the future cash flows from
the plant. They want to do an NPV analysis but are not sure what
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Fajar Factory wants to build a rice processing factory that will
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rice packs per month and sold fo $30 per...
Fajar Factory wants to build a rice processing factory that will take a year to build....
Fajar Factory wants to build a rice processing factory that will
take a year to build. $5 million is spent right away and another $5
million is spent next year. The company CEO is expecting that the
factory will lose $1 million in its first year of operation and
lose another half a million in its second year of operation. with
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rice packs per month and sold fo $30 per...
Your company is evaluating a new factory that will cost $23 million to build. Your target...
Your company is evaluating a new factory that will cost $23
million to build. Your target debt-equity ratio is 1.7. The
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debt is 5%. The company is planning to use retained earnings for
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What are the weighted average flotation costs as a fraction of the
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What are the flotation costs (in $ million)?
A firm is evaluating whether to build a new factory. The proposed investment will cost the...
A firm is evaluating whether to build a new factory. The
proposed investment will cost the firm $1 million to construct and
provide cash savings of $200,000 per year over the next 10
years.
(1) What rate of return does the investment offer?
(2) What is the maximum risk-free rate under which the firm is
willing to make this investment?
(3) If the firm were to invest another $500,000 in the facility
at the end of 5 years, it would...
A firm is evaluating whether to build a new factory. The proposed investment will cost the...
A firm is evaluating whether to build a new factory. The
proposed investment will cost the firm $1 million to construct and
provide cash savings of $200,000 per year over the next 10
years.
(1) What rate of return does the investment offer?
(2) What is the maximum risk-free rate under which the firm is
willing to make this investment?
(3) If the firm were to invest another $500,000 in the facility
at the end of 5 years, it would...
You company wants to build a new small plant that will cost $90,000,000 to construct. You...
You company wants to build a new small plant that will
cost $90,000,000 to construct. You will
pay the construction engineering firm $45,000,000 today
and another $45,000,000 at the end of the first year of
construction. The plant will be finished 24 months from the start
of construction. Each year of operation, the plant will take
charges of $5,000,000 per year at the beginning of the year for raw
materials, labor, and maintenance. Each year of operation, the
plant will...
You company wants to build a new small plant that will cost $90,000,000 to construct. You...
You company wants to build a new small plant that will
cost $90,000,000 to construct. You will
pay the construction engineering firm $45,000,000 today
and another $45,000,000 at the end of the first year of
construction. The plant will be finished 24 months from the start
of construction. Each year of operation, the plant will take
charges of $5,000,000 per year at the beginning of the year for raw
materials, labor, and maintenance. Each year of operation, the
plant will...
1. In theory, what conditions must exist for a company to build a new factory? That...
1. In
theory, what conditions must exist for a company to build a new
factory? That is, what hurdles must a firm overcome in order to
build a factory?
2.
What are the five areas, or categories, of Total Spending? How
large is each area, in terms of total dollars spent, and in
percentage terms--- as a percent of Total Spending?
3.
What are the four events that may cause a recession, in theory?
What IS a recession, exactly? Are...
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