Here is some information about Stokenchurch Inc.: Beta of common stock = 1.2 Treasury bill rate = 4% Market risk premium = 7.5% Yield to maturity on long-term debt = 6% Book value of equity = $440 million Market value of equity = $880 million Long-term debt outstanding = $880 million Corporate tax rate = 35% What is the company’s WACC?
1 answer
Question:
Here is some information about Stokenchurch Inc.: Beta of common stock = 1.2 Treasury bill rate = 4% Market risk premium = 7.5% Yield to maturity on long-term debt = 6% Book value of equity = $440 million Market value of equity = $880 million Long-term debt outstanding = $880 million Corporate tax rate = 35% What is the company’s WACC?
Answers
Answer:8.45%Explanation:Firstly, we need to calculate cost of equity using capital asset pricing model:Cost of equity = Risk-free rate + Beta x Market risk premium = 4% + 1.2 x 7.5% = 13%Then, The weight average cost of capital (WACC) is stated as:WACC = Debt contribution to capital structure x Cost of debt x (1 - tax rate) + Equity contribution capital structure x Cost of equityNote: Debt and equity contribution is calculated using market valuesPutting all the number together, we have:WACC = [880/(880+880)] x 6% x (1 - 35%) + [880/(880+880)] x 13% = 8.45%
Similar Solved Questions
1 answer
Joan bought a soft drink for 3 dollars and 8 candy bars. She spent a total of 43 dollars. How much did each candy bar cost?
Joan bought a soft drink for 3 dollars and 8 candy bars. She spent a total of 43 dollars. How much did each candy bar cost?...
2 answers
Plz help with this problem brainiest if right
plz help with this problem brainiest if right...
2 answers
New businesses are able to receive support from the which was created by Congress. SBA GDP OSHA
New businesses are able to receive support from the which was created by Congress.
SBA
GDP
OSHA...
2 answers
If a town with a population of 5,000 doubles in size every 11 years, what will the population be 44 years from now?
If a town with a population of 5,000 doubles in size every 11 years, what will the population be 44 years from now?...
2 answers
A submarine hovers at 66 and two-thirds yards below sea level. If it ascends 24 and StartFraction 1 over 8 EndFraction yards and then descends 78 and three-fourths yards, what is the submarine’s new position, in yards, with respect to sea level? Negative 169 and StartFraction 13 over 24 EndFraction Negative 121 and StartFraction 7 over 24 EndFraction Negative 12 and StartFraction 1 over 24 EndFraction 12 and StartFraction 1 over 24 EndFraction
A submarine hovers at 66 and two-thirds yards below sea level. If it ascends 24 and StartFraction 1 over 8 EndFraction yards and then descends 78 and three-fourths yards, what is the submarine’s new position, in yards, with respect to sea level? Negative 169 and StartFraction 13 over 24 EndFractio...
1 answer
What 8s the distance between 3and its opposite on a number line?
What 8s the distance between 3and its opposite on a number line?...
2 answers
Which of these is the greatest? 5/7,5/9,5/13,5/6.
Which of these is the greatest? 5/7,5/9,5/13,5/6....
2 answers
Kevin savings account balances changed from 1140 in January to 1450 in April. Find the average rate of change per month
Kevin savings account balances changed from 1140 in January to 1450 in April. Find the average rate of change per month...
1 answer
An applicant for an individual health policy failed to complete the application properly before being able to complete the application and pay the initial premium she is confined to a hospital this will not be covered by the insurance because she has not met conditions specified in the_____________
An applicant for an individual health policy failed to complete the application properly before being able to complete the application and pay the initial premium she is confined to a hospital this will not be covered by the insurance because she has not met conditions specified in the_____________...
1 answer
The roots of a monic quadratic are -3+5t and -3-5i. What is the quadratic?
The roots of a monic quadratic are -3+5t and -3-5i. What is the quadratic?...
1 answer
I NEED HELP PLEASE ANSWER Multiple Choice: - Rationalize the denominator - Convert the bottom of the LHS using an identity - Factor the RHS - Convert tan^2(theta) + 1 of the RHS using an identity - Find common denominators for RHS - Cancel the 1s on LHS
I NEED HELP PLEASE ANSWER
Multiple Choice:
- Rationalize the denominator
- Convert the bottom of the LHS using an identity
- Factor the RHS
- Convert tan^2(theta) + 1 of the RHS using an identity
- Find common denominators for RHS
- Cancel the 1s on LHS...
1 answer
PLEASE HELP!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!what kind of information is found in an online encyclopedia?what kind of information is found in a print glossary of legal terms?what kind of information is found in a Print specialized dictionary of literary terms?what kind of information is found in an online thesaurus?
PLEASE HELP!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!what kind of information is found in an online encyclopedia?what kind of information is found in a print glossary of legal terms?what kind of information is found in a Print specialized dictionary of literary terms?what kind of information is found in an onli...
1 answer
A factory can make 300 dozen doughnuts an hour.what is the unit rate in doughnuts per minute.
A factory can make 300 dozen doughnuts an hour.what is the unit rate in doughnuts per minute....
2 answers
Among michelangelo's ceiling frescoes in the sistine chapel, the most widely known is a. the creation of adam. b. isaiah. c. the sacrifice of noah. d. the exodus.
among michelangelo's ceiling frescoes in the sistine chapel, the most widely known is a. the creation of adam. b. isaiah. c. the sacrifice of noah. d. the exodus....
2 answers
Which elements are important for achieving good design on a slide? Check all that apply. -Align the design so that it looks balanced. -Keep the slide from looking cluttered. -Make it decorative by using fancy fonts. -Use color to highlight information. -Use decorative design so the slide is not boring.
Which elements are important for achieving good design on a slide? Check all that apply.
-Align the design so that it looks balanced.
-Keep the slide from looking cluttered.
-Make it decorative by using fancy fonts.
-Use color to highlight information.
-Use decorative design so the slide is not bori...
2 answers
*50 POINTS -- FRESHMEN ~ ALGEBRA I * Large boxes weigh 75 pounds, and small boxes weigh 40 pounds. a. Write an inequality that represents the numbers of large, x, and small, y, boxes a 200-pound delivery person can take on the elevator. b. Select the reason(s) why some solutions of the inequality might not be practical in real life. >The number of boxes must be a whole number. >The number of boxes must be a rational number. >It is unlikely that one person will carry 20 large boxes. >
*50 POINTS -- FRESHMEN ~ ALGEBRA I *
Large boxes weigh 75 pounds, and small boxes weigh 40 pounds.
a. Write an inequality that represents the numbers of large, x, and small, y, boxes a 200-pound delivery person can take on the elevator.
b. Select the reason(s) why some solutions of the inequality m...
1 answer
What is the solution the the equation 1/2n+3=6
What is the solution the the equation 1/2n+3=6...