Finance problems Speech or Presentation Example | Topics and Well Written Essays - 2000 words

Finance problems - Speech or Presentation ExampleWhat is the component cost of debt for use in the WACC calculation?Tapley Inc. recently hired you as a consultant to estimate the companys WACC. You have obtained the following information. (1) Tapleys bonds mature in 25 years, have a 7.5% annual coupon, a hit value of $1,000, and a market price of $936.49. (2) The companys tax rate is 40%. (3) The risk-free rate is 6.0%, the market risk premium is 5.0%, and the stocks beta is 1.5. (4) The target capital structure consists of 30% debt and 70% equity. Tapley uses the CAPM to estimate the cost of equity, and it does not expect to have to issue any current common stock. What is its WACC?Wagner Inc estimates that its average-risk projects have a WACC of 10%, its below-average risk projects have a WACC of 8%, and its above-average risk projects have a WACC of 12%. Which of the following projects (A, B, and C) should the company give birth?The Nunnally Company has equal amounts of low-ri sk, average-risk, and high-risk projects. Nunnally estimates that its everyplaceall WACC is 12%. The CFO believes that this is the correct WACC for the companys average-risk projects, but that a lower rate should be apply for lower risk projects and a higher rate for higher risk projects. However, the CEO argues that, even though the companys projects have different risks, the WACC apply to evaluate each project should be the same because the company obtains capital for all projects from the same sources. If the CEOs opinion is followed, what is likely to happen over time?Since according to the CEOs opinion all projects, whether angry or non-risky, should be evaluated by using the average WACC therefore the riskier projects cash flows would be discounted by using a lower WACC as a result the firm will accept too many risky projects. Similarly, low risk projects cash flows would be discounted by using a higher WACC which will reject too many low-risk projects.Percy Motors has a t arget capital