carriechan
New member
- Joined
- Nov 1, 2008
- Messages
- 1
Alex Power Company Limited is a listed company which is financed by the following:
(1) Long-term bank loan of $30,000,000 at 5%.
(2) 20,000 10.8% 10-year coupon bonds with par value of $1,000 and coupons are payable semi-annually, currently trading at 105 percent of par.
(3) 1,000,000 ordinary shares with par value of $1 and annual dividend growth rate of 4%, currently trading at $10 each. Dividend for last year was $0.5.
(4) 100,000 shares of 7% preferred stock (with a $100 par value) outstanding, currently selling for $120 per share.
(5) Retained earnings of $10,000,000.
Alex Power Company Limited is considering an investment in a new power plant. The new investment requires an outlay of $20,000,000, and it will generate annual after-tax net cash flows of $4,200,000 in perpetuity. Suppose the corporate tax rate is 15%, calculate the weighted average cost of capital of Alex Power Company Limited and state any two assumptions underlying the above calculation.
this is the question. i don't know how to tackle this question. what else do i need to calculate besides WACC?
and the second part of the question, "state any two assumptions underlying the above calculation. " what kind of answer is it looking for??
(1) Long-term bank loan of $30,000,000 at 5%.
(2) 20,000 10.8% 10-year coupon bonds with par value of $1,000 and coupons are payable semi-annually, currently trading at 105 percent of par.
(3) 1,000,000 ordinary shares with par value of $1 and annual dividend growth rate of 4%, currently trading at $10 each. Dividend for last year was $0.5.
(4) 100,000 shares of 7% preferred stock (with a $100 par value) outstanding, currently selling for $120 per share.
(5) Retained earnings of $10,000,000.
Alex Power Company Limited is considering an investment in a new power plant. The new investment requires an outlay of $20,000,000, and it will generate annual after-tax net cash flows of $4,200,000 in perpetuity. Suppose the corporate tax rate is 15%, calculate the weighted average cost of capital of Alex Power Company Limited and state any two assumptions underlying the above calculation.
this is the question. i don't know how to tackle this question. what else do i need to calculate besides WACC?
and the second part of the question, "state any two assumptions underlying the above calculation. " what kind of answer is it looking for??