The WACC.

Question

Want to see more full solutions like this?

Answer 1

Question

Chapter 13, Problem 1QP

a.

Summary Introduction

To determine: The WACC.

a.

Expert Solution

Answer to Problem 1QP

The WACC is 11.27%.

Explanation of Solution

Determine the WACC

WACC=[((WeightDebt×RateDebt)×(1−Tax))+(WeightPreferred Stock×RatePreferred Stock)+(WeightEquity×RateEquity)]=[((24.30%×9%)×(1−0%))+(75.70%×12%)]=[0.02187+0.09084]=0.11271 or 11.27%

Therefore, the WACC is 11.27%.

b.

Summary Introduction

To determine: The cost of equity after the issue.

b.

Expert Solution

Explanation of Solution

The cost of equity after the issue is as follows:

In Company BO plans and issues a new equity and utilizes the returns to recompense all its debt, then the equity cost will diminish. There will not be any leverage, as a result the equity gets more secure and subsequently orders a lower risk premium. Actually, with all-equity financing, the cost of equity will be equivalent to the company's WACC, which is 11.27%. This is not exactly the previous WACC of 12%.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Students have asked these similar questions

Please don't use hand rating

"Dividend paying stocks cannot be growth stocks" Do you agree or disagree? Discuss choosing two stocks to help justify your view.

Answer 2

Question

Chapter 13, Problem 1QP

a.

Summary Introduction

To determine: The WACC.

a.

Expert Solution

Answer to Problem 1QP

The WACC is 11.27%.

Explanation of Solution

Determine the WACC

WACC=[((WeightDebt×RateDebt)×(1−Tax))+(WeightPreferred Stock×RatePreferred Stock)+(WeightEquity×RateEquity)]=[((24.30%×9%)×(1−0%))+(75.70%×12%)]=[0.02187+0.09084]=0.11271 or 11.27%

Therefore, the WACC is 11.27%.

b.

Summary Introduction

To determine: The cost of equity after the issue.

b.

Expert Solution

Explanation of Solution

The cost of equity after the issue is as follows:

In Company BO plans and issues a new equity and utilizes the returns to recompense all its debt, then the equity cost will diminish. There will not be any leverage, as a result the equity gets more secure and subsequently orders a lower risk premium. Actually, with all-equity financing, the cost of equity will be equivalent to the company's WACC, which is 11.27%. This is not exactly the previous WACC of 12%.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Chapter 13, Problem 1QP

a.

Summary Introduction

To determine: The WACC.

a.

Expert Solution

Answer to Problem 1QP

The WACC is 11.27%.

Explanation of Solution

Determine the WACC

WACC=[((WeightDebt×RateDebt)×(1−Tax))+(WeightPreferred Stock×RatePreferred Stock)+(WeightEquity×RateEquity)]=[((24.30%×9%)×(1−0%))+(75.70%×12%)]=[0.02187+0.09084]=0.11271 or 11.27%

Therefore, the WACC is 11.27%.

b.

Summary Introduction

To determine: The cost of equity after the issue.

b.

Expert Solution

Explanation of Solution

The cost of equity after the issue is as follows:

In Company BO plans and issues a new equity and utilizes the returns to recompense all its debt, then the equity cost will diminish. There will not be any leverage, as a result the equity gets more secure and subsequently orders a lower risk premium. Actually, with all-equity financing, the cost of equity will be equivalent to the company's WACC, which is 11.27%. This is not exactly the previous WACC of 12%.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 13, Problem 1QP

a.

Summary Introduction

To determine: The WACC.

a.

Expert Solution

Answer to Problem 1QP

The WACC is 11.27%.

Explanation of Solution

Determine the WACC

WACC=[((WeightDebt×RateDebt)×(1−Tax))+(WeightPreferred Stock×RatePreferred Stock)+(WeightEquity×RateEquity)]=[((24.30%×9%)×(1−0%))+(75.70%×12%)]=[0.02187+0.09084]=0.11271 or 11.27%

Therefore, the WACC is 11.27%.

b.

Summary Introduction

To determine: The cost of equity after the issue.

b.

Expert Solution

Explanation of Solution

The cost of equity after the issue is as follows:

In Company BO plans and issues a new equity and utilizes the returns to recompense all its debt, then the equity cost will diminish. There will not be any leverage, as a result the equity gets more secure and subsequently orders a lower risk premium. Actually, with all-equity financing, the cost of equity will be equivalent to the company's WACC, which is 11.27%. This is not exactly the previous WACC of 12%.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 13, Problem 1QP

a.

Summary Introduction

To determine: The WACC.

a.

Expert Solution

Answer to Problem 1QP

The WACC is 11.27%.

Explanation of Solution

Determine the WACC

WACC=[((WeightDebt×RateDebt)×(1−Tax))+(WeightPreferred Stock×RatePreferred Stock)+(WeightEquity×RateEquity)]=[((24.30%×9%)×(1−0%))+(75.70%×12%)]=[0.02187+0.09084]=0.11271 or 11.27%

Therefore, the WACC is 11.27%.

b.

Summary Introduction

To determine: The cost of equity after the issue.

b.

Expert Solution

Explanation of Solution

The cost of equity after the issue is as follows:

In Company BO plans and issues a new equity and utilizes the returns to recompense all its debt, then the equity cost will diminish. There will not be any leverage, as a result the equity gets more secure and subsequently orders a lower risk premium. Actually, with all-equity financing, the cost of equity will be equivalent to the company's WACC, which is 11.27%. This is not exactly the previous WACC of 12%.

Answer 6

Chapter 13, Problem 1QP

a.

Summary Introduction

To determine: The WACC.

a.

Expert Solution

Answer to Problem 1QP

The WACC is 11.27%.

Explanation of Solution

Determine the WACC

WACC=[((WeightDebt×RateDebt)×(1−Tax))+(WeightPreferred Stock×RatePreferred Stock)+(WeightEquity×RateEquity)]=[((24.30%×9%)×(1−0%))+(75.70%×12%)]=[0.02187+0.09084]=0.11271 or 11.27%

Therefore, the WACC is 11.27%.

Answer 7

Chapter 13, Problem 1QP

a.

Summary Introduction

To determine: The WACC.

Answer 8

a.

Expert Solution

Answer to Problem 1QP

The WACC is 11.27%.

Answer 9

a.

Expert Solution

Answer 10

a.

Expert Solution

Answer 11

Expert Solution

Answer 12

Explanation of Solution

Determine the WACC

WACC=[((WeightDebt×RateDebt)×(1−Tax))+(WeightPreferred Stock×RatePreferred Stock)+(WeightEquity×RateEquity)]=[((24.30%×9%)×(1−0%))+(75.70%×12%)]=[0.02187+0.09084]=0.11271 or 11.27%

Therefore, the WACC is 11.27%.

Answer 13

b.

Summary Introduction

To determine: The cost of equity after the issue.

b.

Expert Solution

Explanation of Solution

The cost of equity after the issue is as follows:

In Company BO plans and issues a new equity and utilizes the returns to recompense all its debt, then the equity cost will diminish. There will not be any leverage, as a result the equity gets more secure and subsequently orders a lower risk premium. Actually, with all-equity financing, the cost of equity will be equivalent to the company's WACC, which is 11.27%. This is not exactly the previous WACC of 12%.

Answer 14

b.

Summary Introduction

To determine: The cost of equity after the issue.

Answer 15

b.

Expert Solution

Explanation of Solution

The cost of equity after the issue is as follows:

In Company BO plans and issues a new equity and utilizes the returns to recompense all its debt, then the equity cost will diminish. There will not be any leverage, as a result the equity gets more secure and subsequently orders a lower risk premium. Actually, with all-equity financing, the cost of equity will be equivalent to the company's WACC, which is 11.27%. This is not exactly the previous WACC of 12%.