PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 19, Problem 7PS
WACC Table 19.4 shows a simplified
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a) Table below shows the simplified balance sheet information for Jess Elton Enterprise. The debt has just been
refinanced at an interest rate of 6% (short term) and 8% (long term). The expected rate of return on the company's
shares is 15%. There are 7.46 million shares outstanding, and the shares are trading at $46. The tax rate is 35%.
Calculate this company's weighted-average cost of capital (WACC) based on the market weighted scheme.
1,500 Short-term debt
75,600
Cash and marketable
securities
Accounts receivable
Inventory
Current assets
Property, plant, and
equipment
Other assets
Total
120,000 Accounts payable
125,000
Current liabilities
246,500
302,000 Long-term debt
89,000 Shareholders' equity
637,500
Total
62,000
137,600
208,600
637,500
246,300
b) Discuss the different funding strategies a company may follow in order to finance its cumulative working capital
requirements.
Napa plc has 100 million £0.25 ordinary shares in issue with a current market value of £1.20 per share. The cost of ordinary shares is estimated at 12 per cent. The business also has 6 per cent irredeemable loan notes in issue with a nominal value of £75 million. These are currently quoted at £80 per £100 nominal value. The tax rate is 20 per cent.
What is the weighted average cost of capital of the business?
Consider the following information for Federated Junkyards of America.
Debt: $76,000,000 book value outstanding. The debt is trading at 91% of book value. The yield to maturity is 10%.
Equity: 2,600,000 shares selling at $43 per share. Assume the expected rate of return on Federated’s stock is 19%.
Taxes: Federated’s marginal tax rate is Tc = 0.21.
Calculate the weighted-average cost of capital (WACC). (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Chapter 19 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 19.A - The U.S. government has settled a dispute with...Ch. 19.A - You are considering a five-year lease of office...Ch. 19 - WACC True or false? Use of the WACC formula...Ch. 19 - WACC The WACC formula seems to imply that debt is...Ch. 19 - Prob. 3PSCh. 19 - Prob. 4PSCh. 19 - WACC Whispering Pines Inc. is all-equity-financed....Ch. 19 - WACC Table 19.3 shows a book balance sheet for the...Ch. 19 - WACC Table 19.4 shows a simplified balance sheet...Ch. 19 - Prob. 8PS
Ch. 19 - WACC Nevada Hydro is 40% debt-financed and has a...Ch. 19 - Flow-to-equity valuation What is meant by the...Ch. 19 - APV True or false? The APV method a. Starts with a...Ch. 19 - APV A project costs 1 million and has a base-case...Ch. 19 - APV Consider a project lasting one year only. The...Ch. 19 - APV Digital Organics (DO) has the opportunity to...Ch. 19 - Prob. 17PSCh. 19 - Prob. 18PSCh. 19 - Prob. 19PSCh. 19 - Prob. 20PSCh. 19 - Prob. 22PSCh. 19 - Company valuation Chiara Companys management has...Ch. 19 - Prob. 26PSCh. 19 - Prob. 27PS
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