Merk and Company Ltd has decided to use the weighted average cost of capital (WACC) to...

Merk and Company Ltd has decided to use the weighted average cost of capital (WACC) to discount the free cash flows associated with project evaluation. You have been given the task of determining the after-tax WACC of the firm. You are informed that Merk and Company Ltd uses the following securities to fund its operations:

 7,000 individual bonds with a face value of $1000 that will mature in 10 years’ time offer a coupon that is paid half‐yearly. The coupon rate for these bonds is 8% per annum. The current market interest rate for these bonds is 9% per annum.
 The beta of Merk Ltd is 1.2, the risk-free rate is currently 4% per annum, and the market risk premium is 6%. Currently 800,000 ordinary shares are outstanding and each share is trading at a market price of $5.
 400,000 preference shares, which pay an annual dividend of 1% on a stated value of $100. Each preference share is trading at a market price of $10.
 The company tax rate is 30 percent.
 Compute the WACC based on the above information.

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

SOLVED WITH BA II PLUS CALCULATOR

jeff jeffy answered 1 year ago

FIN Ltd has decided to use the weighted average cost of capital (WACC) to discount the...

FIN Ltd has decided to use the weighted average cost of capital (WACC) to discount the after-tax cash flows associated with project evaluation. You have been given the task of determining the after-tax WACC of the firm. You are informed that FIN Ltd uses the following securities to fund its operations: • 7,000 individual bonds with a face value of $1000 that will mature in 10 years’ time offer a coupon that is paid half-yearly. The coupon rate for these...

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%?

The use of the overall firm’s weighted average cost of capital (WACC or RWACC) in discounting...

The use of the overall firm’s weighted average cost of capital (WACC or RWACC) in discounting projects of different risk levels results in the _______________________. A) rejection of too many high-risk projects B) acceptance of too many low-risk projects C) acceptance of too many high-risk projects and rejection of too many low-risk projects D) acceptance of too many low-risk projects and rejection of too many high-risk projects

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...

Select all options that describe the Weighted Average Cost of Capital (WACC) for a company: The...

Select all options that describe the Weighted Average Cost of Capital (WACC) for a company: The WACC represents the overall cost of the company's long term financing. It also represents the required return on the company's assets. The WACC for the company is equal to the cost of equity plus the cost of debt. This total cost of capital reflects the price of a single share in the company. The WACC for the company is equal to the cost of...

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

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?

(A) Please calculate the Weighted Average Cost of Capital (WACC) for the following company. Assumptions: Risk...

(A) Please calculate the Weighted Average Cost of Capital (WACC) for the following company. Assumptions: Risk free rate = 4.0%; Company’s spread = 2.0%; Expected return of the market = 9.0%; Company Beta = 1.10; Company debt to capitalization ratio = 40%; and Company tax rate = 30%. (Please be sure to show your calculations.) (B) Please define and explain the Hurdle Rate. (3 points)

evaluate Weighted Average Cost of Capital (WACC) concepts, why is WACC an important tool in the...

evaluate Weighted Average Cost of Capital (WACC) concepts, why is WACC an important tool in the evaluation of capital expenditure programs, financial structuring strategies, capital projects, equity recapitalization, dividend determination, financing working capital expansions, and evaluate WACC methods comparing other financial analysis applications used with WACC. can you also include your references.

Question