HomeworkLib
Question

usco Po 2. WACC. Here is some information about Stokenchurch Inc.: Beta of common stock = 1.2 Treasury bill rate = 4% Market

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

ANS- WACC = weight ( cost of equity ) + weight ( cost of debt)(1- tax rate)

Cost of equity = RF + B( market risk premium)

= 4% + 1.2 (7.5%)

= 13%

NOTE- Treasury bill rate is taken as risk free rate

Cost of debt = 6%

Total capital employed = market value of equity + book value of debt

= 880 + 880

= 1760

Weight of equity = Market value of equity / total capital employed

= 880 / 1760

= 50%

Weight of debt = book value of debt / total capital employed

= 880 / 1760

= 50%

WACC = 0.5 (cost of equity ) + 0.5(cost of debt) ( 1 - tax rate)

= 0.5 (13%) + 0.5(6%) (1 - 0.21)

= 6.5% + 2.37%

= 8.87%

Note - For equity always take market value of equity

0 0
Add a comment
Know the answer?
Add Answer to:
usco Po 2. WACC. Here is some information about Stokenchurch Inc.: Beta of common stock =...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Here is some information about Stokenchurch Inc.: Beta of common stock = 1.7 Treasury bill rate...

    Here is some information about Stokenchurch Inc.: Beta of common stock = 1.7 Treasury bill rate = 4% Market risk premium = 8.0% Yield to maturity on long-term debt = 9% Book value of equity = $490 million Market value of equity = $980 million Long-term debt outstanding = $980 million Corporate tax rate = 21% What is the company’s WACC?

  • Here is some information about Stokenchurch Inc.: Beta of common stock = 1.9 Treasury bill rate...

    Here is some information about Stokenchurch Inc.: Beta of common stock = 1.9 Treasury bill rate = 4% Market risk premium = 8.2% Yield to maturity on long-term debt = 5% Book value of equity = $510 million Market value of equity = $1,020 million Long-term debt outstanding = $1,020 million Corporate tax rate = 21% What is the company’s WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

  • Here is some information about Stokenchurch Inc.: Beta of common stock = 1.3 Treasury bill rate...

    Here is some information about Stokenchurch Inc.: Beta of common stock = 1.3 Treasury bill rate = 4% Market risk premium = 7.6% Yield to maturity on long-term debt = 5% Book value of equity = $450 million Market value of equity = $900 million Long-term debt outstanding = $900 million Corporate tax rate = 35% What is the company’s WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

  • Here is some information about Stokenchurch Inc.: Beta of common stock = 1.4 Treasury bill rate = 4% Market risk premium...

    Here is some information about Stokenchurch Inc.: Beta of common stock = 1.4 Treasury bill rate = 4% Market risk premium = 6.7% Yield to maturity on long-term debt = 10% Book value of equity = $360 million Market value of equity = $720 million Long-term debt outstanding = $720 million Corporate tax rate = 21% What is the company’s WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

  • Problem 13-5 Calculating WACC (LO1) The total book value of WTC's equity is $8 million, and...

    Problem 13-5 Calculating WACC (LO1) The total book value of WTC's equity is $8 million, and book value per share is $20. The stock has a market-to-book ratio of 1.5, and the cost of equity is 13%. The firm's bonds have a face value of $5 million and sell at a price of 110% of face value. The yield to maturity on the bonds is 10%, and the firm's tax rate is 21%. What is the company's WACC? (Do not...

  • Suppose a firm has 33 million shares of common stock outstanding at a price of $40...

    Suppose a firm has 33 million shares of common stock outstanding at a price of $40 per share. The firm also has 200,000 bonds outstanding with a current price of $1005.2. The outstanding bonds have yield to maturity 10.8%. The firm's common stock beta is 1.2 and the corporate tax rate is 36%. The expected market return is 12% and the T-bill rate is 6%. What is the WACC for this firm? (All answers should be in the format of...

  • Use the following information about Rex Inc. for problems 1-6. Common stock: 500,000 shares outstanding. $20...

    Use the following information about Rex Inc. for problems 1-6. Common stock: 500,000 shares outstanding. $20 per share, beta=2.3 Bonds: 3,000 bonds outstanding, $1,000 face value each, 4.5% coupon paid semiannually, 9 years to maturity, market price of $1,015 per bond. Market risk premium=8%, yield on 30 day Treasury Bill= 1.5%, Tax rate = 25% Question 6 (1 point) What is Rex Inc's WACC?

  • Assume you have the following information about a firm: 50 million shares outstanding; $80 price per...

    Assume you have the following information about a firm: 50 million shares outstanding; $80 price per share; beta = 1.2; $1 billion in outstanding debt currently valued at 110%; coupon rate of debt = 8% (semiannual coupons); 15 years to maturity; market risk premium = 8%; risk-free rate = 3%; corporate tax rate = 35%. Given the above information, the weighted average cost of capital (WACC) for the frim would be ______%.

  • Consider a firm whole debt has a market value of $40 million and whose stock has...

    Consider a firm whole debt has a market value of $40 million and whose stock has a market value of $60 million (3 million outstanding shares of stock, each selling for $20 per share). The firm pays a 5 percent rate of interest on its new debt and has a beta of 1.41. The corporate tax rate is 34 percent. (Assume that the security market line (SML) holds, that the risk premium on the market is 9.5 percent [somewhat higher...

  • Given the following information about your firm’s capital structure, calculate your firm’s WACC (assume the corporate...

    Given the following information about your firm’s capital structure, calculate your firm’s WACC (assume the corporate tax rate is 35%). Debt Number of bonds outstanding = 14,000 price per bond = $1,165 par value per bond = $1,000 coupon rate = 6% (paid annually) Years to maturity = 10 Common Stock Number of shares outstanding = 1,000,000 Price per share = $25 Book value per share = $15 Beta = 1.4 Risk free rate = 4.5% Market risk premium =...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT