The WACC.

Question

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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%.

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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%.

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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%.

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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%.

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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%.