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FIN - WACC Calculation Question

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Question;Find the WACC for a firm with the following characteristics. A few years ago the firm issued $4,000,000 debt with a coupon rate of 4%, currently that debt is trading with a yield to maturity of 5.5% and a value of $3,500,000. The firm has 1,000,000 common shares outstanding at a value of $6/share. You look up the asset beta for firms in the same industry (SIC) code and determine that value is 1.15. The firm plans on keeping its D/E ratio constant (at the current level) going forward and the tax rate is expected to be 35%. The beta of the firm?s debt is estimated as 0.10, the risk free rate is 3% and the market return is 9.8%.

 

Paper#48645 | Written in 18-Jul-2015

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