Suppose you have the following information about the firm: Vortex industries is considering a new...
90.2K
Verified Solution
Link Copied!
Question
Accounting
Suppose you have the following information about the firm:
Vortex industries is considering a new project and they need an estimate of WACC to perform thevaluation using the IRR method. This is what is known about the company:
Current stock price is $45. The firms beta is 1.4. Current risk-free rate is 4% and the expectedreturn on the market is 11%. The next dividend is expected to be $1.10. The firms expected growthrateis 3%.There are 100,000 stocks outstanding.(Hint: use yourbest estimateof the cost of equity forWACC estimation, that is, find the average of the two models).
The firm also has some debt outstanding with par value of $1,000. Current quote is 115. The bondspay 7% coupons semiannually and there are20,000 bonds outstanding. The bonds mature in 25years. The firms tax rate is 21%.Finally, the firm has 10,000 preferred stocks outstanding with the price of $12 each and a dividendof $1.10.
1. What is the firms WACC
2. Should you accept the project if the IRR is 18%
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
- Unlimited Question Access with detailed Answers
- Zin AI - 3 Million Words
- 10 Dall-E 3 Images
- 20 Plot Generations
- Conversation with Dialogue Memory
- No Ads, Ever!
- Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Other questions asked by students
StudyZin's Question Purchase
1 Answer
$0.99
(Save $1 )
One time Pay
- No Ads
- Answer to 1 Question
- Get free Zin AI - 50 Thousand Words per Month
Unlimited
$4.99*
(Save $5 )
Billed Monthly
- No Ads
- Answers to Unlimited Questions
- Get free Zin AI - 3 Million Words per Month
*First month only
Free
$0
- Get this answer for free!
- Sign up now to unlock the answer instantly
You can see the logs in the Dashboard.