You have the following information about Burgundy Basins, a sinkmanufacturer.
Equity sharesoutstanding 20 million
Stock price pershare $40.00
Yield to maturity ondebt 7.5%
Book value of interest-bearingdebt $320 million
Coupon interest rate ondebt 4.8%
Market value ofdebt $290 million
Book value ofequity $500 million
Cost of equitycapital 14%
Taxrate 35%
Burgundy is contemplating what for the company is anaverage-risk
investment costing $40 million and promising an annual after-taxcash
flow of $6.4 million in perpetuity.
b. Whatis Burgundy's weighted-average cost of capital?
Isnt't the calculated tax rate suppose to be (1-0.35 = 0.65),you have 7.5%? How was the the Debt + Equity calculated? You say itis 800. How was that calculated?
b.WACC = cost of debt*Debt proportion + cost of equity *equityproportion = 7.5%*290/(290+800) + 14%*500/(290+800) = 1.99% +10.27% = 12. 26% How was 800 calculated?
You have the following information about Burgundy Basins, a sinkmanufacturer.
Equity sharesoutstanding 20 million
Stock price pershare $40.00
Yield to maturity ondebt 7.5%
Book value of interest-bearingdebt $320 million
Coupon interest rate ondebt 4.8%
Market value ofdebt $290 million
Book value ofequity $500 million
Cost of equitycapital 14%
Taxrate 35%
Burgundy is contemplating what for the company is anaverage-risk
investment costing $40 million and promising an annual after-taxcash
flow of $6.4 million in perpetuity.
| b. Whatis Burgundy's weighted-average cost of capital? |
Isnt't the calculated tax rate suppose to be (1-0.35 = 0.65),you have 7.5%? How was the the Debt + Equity calculated? You say itis 800. How was that calculated?
b.WACC = cost of debt*Debt proportion + cost of equity *equityproportion = 7.5%*290/(290+800) + 14%*500/(290+800) = 1.99% +10.27% = 12. 26% How was 800 calculated?
