3) X Corporation wants to calculates its cost of capital for major expansion program which riskier than the risk level of its current operations ⚫ Tax rate=30%. • 30-year, 10% coupon, annual payment noncallable bonds sell for $1,200. New bonds will be privately placed with no flotation cost. ⚫ 10%, $100 par value, quarterly dividend, perpetual preferred stock sells for $98.50. ⚫ Common stock sells for $100. Do= $8.19 and g=4%. b=0.9; TRF 4%; RPM = 5%. Bond-Yield Risk Premium = 3%. If the weight of debt is 30%, weight of equity is 60% and weight of preferred stock is 10%. a. What is the WACC of X corporation. (Show your calculation for each component of WACC and the overall WACC) b. What should be the appropriate discount rate for the expansion program.
3) X Corporation wants to calculates its cost of capital for major expansion program which riskier than the risk level of its current operations ⚫ Tax rate=30%. • 30-year, 10% coupon, annual payment noncallable bonds sell for $1,200. New bonds will be privately placed with no flotation cost. ⚫ 10%, $100 par value, quarterly dividend, perpetual preferred stock sells for $98.50. ⚫ Common stock sells for $100. Do= $8.19 and g=4%. b=0.9; TRF 4%; RPM = 5%. Bond-Yield Risk Premium = 3%. If the weight of debt is 30%, weight of equity is 60% and weight of preferred stock is 10%. a. What is the WACC of X corporation. (Show your calculation for each component of WACC and the overall WACC) b. What should be the appropriate discount rate for the expansion program.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education