Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Question
Chapter 19, Problem 1PS
Summary Introduction
To determine: WACC (Weighted average cost of capital)
Expert Solution & Answer
Explanation of Solution
Calculate market value of equity and debt:
Compute percentage of debt and equity financing:
Compute WACC:
Hence, WACC is 13.75%.
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Students have asked these similar questions
Consider the following information for Federated Junkyards of America.
Debt: $76,000,000 book value outstanding. The debt is trading at 91% of book value. The yield to maturity is 10%.
Equity: 2,600,000 shares selling at $43 per share. Assume the expected rate of return on Federated’s stock is 19%.
Taxes: Federated’s marginal tax rate is Tc = 0.21.
Calculate the weighted-average cost of capital (WACC). (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Consider the following information for Federated Junkyards of America. Debt: $65,000,000 book value outstanding. The debt is trading at 86% of book value. The yield to maturity is 9%. Equity: 1,500,000 shares selling at $32 per share. Assume the expected rate of return on Federated’s stock is 18%. Taxes: Federated’s marginal tax rate is Tc = 0.21. Calculate the weighted-average cost of capital (WACC).
Use the following information to compute the weighted average cost of capital (WACC) of GoGo Inc.
▪ Debt information:
The beta of GoGo Inc. stock is 1.5
. Risk-free rate is 4%
• Market return is 15%
• GoGo's capital structure is 65% equity and 35% debt.
The tax rate is 21%.
14.62%
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The maturity value is $1,000.
GoGo's WACC is..
15.47%
The coupon rate is 8%, with semiannual payments.
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12.20%
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Chapter 19 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 19.A - The U.S. government has settled a dispute with...Ch. 19.A - Prob. 2QCh. 19 - Prob. 1PSCh. 19 - Prob. 2PSCh. 19 - WACC True or false? Use of the WACC formula...Ch. 19 - Flow-to-equity valuation What is meant by the...Ch. 19 - APV True or false? The APV method a. Starts with a...Ch. 19 - APV A project costs 1 million and has a base-case...Ch. 19 - Prob. 7PSCh. 19 - APV Consider a project lasting one year only. The...
Ch. 19 - WACC The WACC formula seems to imply that debt is...Ch. 19 - Prob. 10PSCh. 19 - Prob. 11PSCh. 19 - WACC Table 19.4 shows a simplified balance sheet...Ch. 19 - WACC How will Rensselaer Felts WACC and cost of...Ch. 19 - APV Digital Organics (DO) has the opportunity to...Ch. 19 - APV Consider another perpetual project like the...Ch. 19 - Prob. 18PSCh. 19 - Prob. 19PSCh. 19 - Prob. 22PSCh. 19 - Company valuation Chiara Companys management has...Ch. 19 - Prob. 25PSCh. 19 - Prob. 26PS
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