Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Financial Accounting Expert

Problem: A corporation has the following balance sheet (liabilities side):

Current liabilities                                       $ 2,000
Long- term debt                                          5,000
Preferred stock                                           2,000
Common stock                                            8,000
Retained earnings                                        3,000
$ 20,000

Currently, the riskless interest rate is 8%; corporate tax rate is 50%; the current price of share of common stock is $ 20; and dividends have been level at $ 1 per share per year for numerous years. Recently, company executives have considered growing the existing business by acquiring a competitor. To do so, they should compute the WACC of the firm and estimate the NPV of the acquisition. Because the acquisition is of same risk as the firm, the WACC (unlevered equity cost) can be used. A financial executive has employed the following procedure to compute the WACC. Debt and preferred stock are fixed claims offering a fairly secure stable return, and so there before- tax cost is assumed to equal the riskless rate. The dividend yield has held stable at about 5%; so this is used as the cost of new and retained equity. Finally, the balance sheet shows the firm to be composed of 25% debt, 55% equity, 10% preferred ( common plus retained), and 10% current liabilities. Current liabilities are assumed to be costless; therefore the WACC is 4.55%. Comment on this process.

Financial Accounting, Accounting

  • Category:- Financial Accounting
  • Reference No.:- M94277

Have any Question? 


Related Questions in Financial Accounting

Yoursquore leading a project to migrate customer data

You’re leading a project to migrate customer data (biographical, billing, and orders) from the legacy system to an off-the-shelf product sold by MicroTech. The project was going well, but a key programmer recently inform ...

Using the data that follows and assuming cost of goods sold

Using the data that follows and assuming cost of goods sold is $273,700, prepare the cost of goods sold section of a merchandising income statement (periodic inventory system). Include the amount of purchases for the mon ...

Robert wondered why he was always so stressed out when he

Robert wondered why he was always so stressed out when he was dealing with Lucas, the latest addition to his team. On the face of it, the new hire seemed very agreeable and supportive, but whatever interactions he had ha ...

Assignmentbullwhen a company owns inventory it has to

Assignment • When a company owns inventory, it has to decide how to consistently value the inventory sold and on hand. Four inventory valuation methods are available to help the organization effectively value its invento ...

Assignment intermediate accounting for finance working

Assignment: Intermediate Accounting for Finance Working Capital Case Study Your job is to make ABC cash flow in years 2 and 3 (positive ending cash balances); which means you must balance ABC's cash conversion cycle days ...

Complete problem 14-10 prepare a statement of cash flows

Complete "Problem 14-10 Prepare a Statement of Cash Flows; Free Cash Flow" in chapter 14 of Managerial Accounting. Present your responses in an Excel spreadsheet. Joyner Company's income statement for Year 2 follows: Sal ...

Sampling distributions - real estate part 2directions use

Sampling Distributions - Real Estate Part 2 Directions: Use the real estate data you used for your Week 2 learning team assignment. Analyze the data and explain your answers. 1. Review the data and for the purpose of thi ...

Assignmentfor all questions assume no other transactions or

Assignment For all questions, assume no other transactions or activities have taken place during the period except as noted. Answer all questions! Prepare and present calculations for partial credits for questions with c ...

Assignmentglorious garden lawn service1 prepare the entries

Assignment Glorious Garden Lawn Service 1. Prepare the entries using the list of transactions. Put them in the general journal. 2. Post the journal entries from the general journal to the general ledger. 3. Prepare a tri ...

Assignmentwrite a five- to seven-page financial statement

Assignment Write a five- to seven-page financial statement analysis of a public company, formatted according to APA style. Here is a breakdown of the sections within the body of the assignment: Company Overview Provide a ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro