Solution Library

Calculation Of Weighted Average Cost Of Capital

Question

Assume FCFLMNO = $100,000,000 for 2013.  The company’s annual growth rate in its FCFs is 5%.  The company employs the three major capital components (equity, debt, and preferred stock) to finance itself.  The company is targeting a distribution in the three capital components of Ws = 45%, Wd = 45%, Wps = 10%.  LMNO’s last period dividend was $4.00.  Simultaneously, in the stock market, the E(RM) = 7%, σLMNO,M = 0.0025, and σM = 0.05.  Also, RF = 3%.  On the preferred stock for LMNO, the Dps = $15.00 and its preferred stock is trading at $150.  In thousand dollar units, LMNO’s current 10-year, 10% coupon debt with an annual coupon $100 (i.e. compounded annually) is trading at $887.  Finally, LMNO’s τ = 30%.  First, find the WACCLMNO?  Second, if LMNO is a constant growth perpetuity, estimate its value?

Summary

The question belongs to Finance and it is about calculating weighted average cost of capital for a company with an annual growth rate of FCF is 5% and the company is targeting a distribution in three capital components, the value of the company needs to estimated.

Total Word Count 423

Download Full Solution

Comments

  • HWA
    Rasha

    this is a very good website

  • HWA
    maani

    I have 50 questions for the same test your page is showing only 28

  • HWA
    joeanne

    hi can you please help or guide me to answer my assignments. thanks

  • HWA
    joeanne

    hi can anyone help or guide me to my assignments. thanks

  • HWA
    Monik


  • HWA
    Cristina

    This solution is perfect ...thanks

  • HWA
    Janete

    Hello Allison,I love the 2nd image that you did! I also, had never heard of SumoPaint, is something that I will have to exolpre a bit! I understand completely the 52 (or so) youtube videos that you probably watched. Sometimes they have what you want, sometimes they don't! However, it is always satisfying when you are able to produce something that you have taught yourself. Great job!Debra 0 likes

  • HWA
    Sandeep

    Perfect bank of solution. 

  • HWA
    Oxana

    great !

  • HWA
    Paul Brandon-Fritzius

    thanks for the quick response. the solution looks good. :)

  • HWA
    tina Johnson

    thnx for the answer. it was perfect. just the way i wanted it. 

  • HWA
    Giuseppe

    works fine.