EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 11, Problem 22P
Summary Introduction
To determine: Weighted marginal cost of capital for new projects in Division F.
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Dynamic World Vista Industries (DWVI) wishes to estimate its cost of capital for use in analyzing projects that are similar to those that already exist. The firm's current capital structure, in terms of market value, includes 30 percent corporate bond, 10 percent irredeemable loan notes, 10 percent preference shares and 50 percent ordinary shares.
The firm's corporate bond has an average yield to maturity of 8.3 percent. DWVI also has an irredeemable loan notes currently trading at GHc 40 ex interest an interest rate of five (5) percent. Its preference shares have a Gllc 70 par value, an 8 percent dividend, and are currently selling for GHc 76 per share. DWVI's beta is 1.05, return on riskless asset is 4 percent and the return on the GSE (the market proxy) is 11.4 percent. The industry is in the 40 percent marginal tax bracket.
Required:
a) What are DWVI's pre-tax costs…
Dynamic World Vista Industries (DWVI) wishes to estimate its cost of capital for use in analyzing projects that are similar to those that already exist. The firm’s current capital structure, in terms of market value, includes 30 percent corporate bond, 10 percent irredeemable loan notes, 10 percent preference shares and 50 percent ordinary shares.
The firm’s corporate bond has an average yield to maturity of 8.3 percent. DWVI also has an irredeemable loan notes currently trading at GHc 40 ex interest an interest rate of five (5) percent. Its preference shares have a Gllc 70 par value, an 8 percent dividend, and are currently selling for GHc 76 per share. DWVI's beta is 1.05, return on riskless asset is 4 percent and the return on the GSE (the market proxy) is 11.4 percent. The industry is in the 40 percent marginal tax bracket.
Required:
a) What are DWVI's pre-tax costs of debts,…
Dynamic World Vista Industries (DWVI) wishes to estimate its cost of capital for use in analyzing
projects that are similar to those that already exist The frm's current capital structure, in terms of
market value, includes 30 percent corporate bond, 10% irredeemable loan notes, 10% preference shares
and 50%ordinary shares.
The firm's corporate bond has an average yield to maturity of 8.3%. DWVI also has an irredeemable
loan notes currently trading at GHC40 ex interest, an interest rate of five (5) percent. Its preference
shares have a GHC70 par value, an 8 percent dividend, and are currently
selling for GHC76 per share. DWVI's beta is 1.05, return on riskless asset is 4% and the return on the
GSE (the market proxy) is 11.4%. The industry is in 40% marginal tax bracket.
Required:
What are DWVI's pre-tax costs of debts, preference shares and ordinary shares?
Calculate DWVI's weighted average cost of capital (WACC) on both a pre-tax and after-tax basis.
Which WACC should DWVI uses when…
Chapter 11 Solutions
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Ch. 11 - Prob. 1QTDCh. 11 - Prob. 2QTDCh. 11 - Prob. 3QTDCh. 11 - Prob. 4QTDCh. 11 - Prob. 5QTDCh. 11 - Prob. 6QTDCh. 11 - Prob. 7QTDCh. 11 - Prob. 8QTDCh. 11 - Prob. 9QTDCh. 11 - Prob. 10QTD
Ch. 11 - Prob. 1PCh. 11 - Prob. 2PCh. 11 - Prob. 3PCh. 11 - Prob. 4PCh. 11 - Prob. 5PCh. 11 - Prob. 6PCh. 11 - Prob. 7PCh. 11 - Prob. 8PCh. 11 - Prob. 9PCh. 11 - Prob. 10PCh. 11 - Prob. 11PCh. 11 - Prob. 12PCh. 11 - Prob. 13PCh. 11 - Prob. 14PCh. 11 - Prob. 15PCh. 11 - Prob. 16PCh. 11 - Prob. 17PCh. 11 - Prob. 18PCh. 11 - Prob. 19PCh. 11 - Prob. 20PCh. 11 - Prob. 21PCh. 11 - Prob. 22PCh. 11 - Prob. 23PCh. 11 - Prob. 24PCh. 11 - Prob. 25PCh. 11 - Prob. 26PCh. 11 - Prob. 28PCh. 11 - Prob. 29P
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