60.1K

Verified Solution

Link Copied!

What are the correct answers and how did you

solve for them? please show work! thanks

In financial analysis, it is important to select an appropriate discount rate. A project's discount rate must be high to compensate investors for the project's risk. The return that shareholders require from the company as a compensation for their investment risk is referred to as the cost of equity. Consider this case: Weghorst Co. is a 100% equity-financed company (no debt or preferred stock); hence, its WACC equals its cost of common equity. Weghorst Co.'s retained eanings will be sufficient to fund its capital budget in the foreseeable future. The company has a beta of 1.50, the risk-free rate is 5.0 % , and the market returm is 6.5 % . What is Weghorst Co.'s cost of equity? O 16.25% O 24.13 % O 7.25 % O 8.75 % Weghorst Co. is financed exclusively using equity funding and has a cost of equity of 10.65 % . It is considering the following projects for investment next year Project Required Investment Expected Rate of Return $23.575 9.65% $13,250 14.60% $10,975 14.10% $32,675 9.70% tach project has average risk, and weghorst Co. accepts any project whose expected rate of return exceeds its cost of capital How large should next year's capital budget be? O s24,225 O s56,250 O S45.925

Answer & Explanation Solved by verified expert

See Answer