Finance Homework Help - Please.

[turducken]

Hello NS. Anyone here study/studied finance and would be willing to give me a few pointers please? I was given a question I need to answer. I'm comletely lost and have no idea how to answer it and thought I'd come see you for advice. Any help would be great thanks.

Example: Executive Fruit has issued debt, preferred stock and common stock. The market value of these securities are $4mil, $2mil and $6mil. The yield to maturity on their debt is 6%, the current price of preferred stock is $100 and the expected preferred stock dividend is $12. The risk free rate is 4%, the expected return on market is 12% and the Beta on common equity is 1.75. The marginal tax rate is 35%.

- Determine the the Weighted Average Cost of Capital for Executive Fruit.

Thanks.

 

[--ski--]

12.29%

 

[turducken]

12.29%

Holy shit. Thanks. That was quick. Would you mind telling me a few tips to how you worked that out please?

 

[Sno.]

no, its not 12.9%, its 13.1%

 

[--ski--]

Holy shit. Thanks. That was quick. Would you mind telling me a few tips to how you worked that out please?

How? I said the first analyst to solve this gets to go home.

no, its not 12.9%, its 13.1%

It better not be. I already sent the cunt home.

 

[Sno.]

lolol

 

[--ski--]

Step 1 – Calculate Weights.

Firm Value = $12mil.

Debt : 4/12 = .333

CS = 6/12 = .5

PS = 2/12 = .1666

Step 2 – Required Rates.

Debt = YTM = 6%

PS = Dp/Pp = 12%

CS = CAPM

= Re=Rf + Beta(Rm – Rf)

= .04 + 1.75(.12-.04)

= 18%

Step 3 – Calculate WACC.

.333(.06)(1-.35) + .1666(.12) + .5(.18)

= 12.29%

Actually, I think that little bastard was right. Anyhow, It's 5am, I've we've worked almost twenty hours straight and my brain is a ball of mush.

 

[turducken]

Thanks for the help. I'll let you know what if the answer is wrong ha. Thanks.

 

[Hodor]

just do what real finance experts do and cheat and then lie about it