Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

You are working as an intern at Coral Gables Products, a privately owned manufacturing company. You got into a discussion with the Chief Financial Officer (CFO) at Coral Gables about weighted average cost of capital calculations. She pointed out that, just as the beta
of the assets of a firm equals a weighted average of the betas for the individual assets (as shown below):

Bn Asset Portfolio = SUM_(t - 1, n) xiBi = x1B1 + x2B2 + ... + xnBn

The beta of the assets of a firm also equals a weighted average of the betas for the debt, preferred stock, and common stock of a firm:

Bn Asset Portfolio = SUM_(i = 1, n) xiBi = x_Debt * B_debt + x_ps * B_ps + x_cs * B_cs

a) Why must this be true? Please provide your explanation with appropriate exs.

b) Discuss your understanding of WACC and describe how the individual cost of each capital component (equity, preference and debt capital) can be find outd.

 

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M925885

Have any Question? 


Related Questions in Basic Finance

If the binomial model produces a call option price that is

If the binomial model produces a call option price that is higher than the price at which the option is trading in the market, what strategy is suggested? Discuss how a binomial model accommodates the possibility of earl ...

1 describe the process of financing the construction and

1. Describe the process of financing the construction and operation of a typical real estate development. Indicate the order in which lenders who fund project development financing are sought and why this pattern is foll ...

Consider the following values noin1 28 million cap rate 75

Consider the following values. NOIn+1: $2.8 million. Cap rate: 7.5%. Brokerage commission: 3%. Remaining mortgage balance: $12 million. Remaining book value: $14 million. Total depreciation taken: $4.9 million. Recapture ...

Adding a budgetbullusing microsoft project software amend

Adding a Budget • Using Microsoft Project software amend your WBS to include your project budget • Make sure that you use your resource sheet in Microsoft project to list all materials, work classification units and reso ...

Given the following informationcurrent stock price 35stock

Given the following information: Current stock price $35 Stock beta: 2 Risk-free rate: 4% Market risk premium: 6% Expected dividend, D 1 : $3.00 Expected long-run growth rate of dividends: 6% What is the required return ...

Apple inc is currently equity-financed only with a beta of

Apple Inc. is currently equity-financed only with a beta of 1.1. Its tax rate is 35%. Risk-free rate and market risk premium are both 7%. Calculate the cost of equity if Apple Inc's capital structure consists of 30% debt ...

1 what are some of the factors that make up a communitys

1. What are some of the factors that make up a community's economic profile? How do these factors influence that community's disaster risk? 2. Visit FEMA's disaster declaration archive at http://www.fema.gov/news/disaste ...

1 why might a borrower be willing to pay a higher price for

1. Why might a borrower be willing to pay a higher price for a home with an assumable loan? 2. What is a buy down loan? What parties are usually involved in this kind of loan? 3. Why might a wraparound lender provide a w ...

Interpret the following statements about value at risk so

Interpret the following statements about Value at Risk so that they would be easily understood by a nontechnical corporate executive: a. VAR of $1.5 million, one week, probability = 0.01. b. VAR of $3.75 million, one yea ...

State and explain two reasons why firms hedgea major bread

State and explain two reasons why firms hedge? A major bread maker is planning to purchase wheat in the near future. Identify and explain the appropriate hedging strategy? Explain how the implied repo rate on a spread tr ...

  • 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

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

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen