UB MGF 401 - Assignment 5 (3 pages)

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Assignment 5



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Assignment 5

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Pages:
3
School:
University at Buffalo, The State University of New York
Course:
Mgf 401 - Financial Institutions

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Danny Chen MGF 301 Corporation Finance Spring 2012 ASSIGNMENT 5 DUE Monday April 30th at 12 30pm in Jacobs 365 You may in a group of up to 4 on this Assignment Please indicate clearly on all submitted Assignments who the members of the group are Please note all assignments submitted with more than 4 group members will automatically receive a 0 grade No late assignments will be accepted You may hand in the assignment in person in Jacobs 365 put it under the door if no one is there or submit it by email to the link in UBLearns before the time it is due All electronic submissions must be to the link in UBLearns Note please follow all the Digital Submission rules see Syllabus Answer all of the following questions For each answer show your work 1 The total book value of WTC s equity is 20 million and book value per share outstanding is 8 The stock of WTC is currently selling for a price of 25 per share and the beta of WTC is 85 The bonds of WTC have a face value of 43 million and sell at a price of 95 percent of face value The yield to maturity on the bonds is 7 percent and the firm s tax rate is 35 percent If the E Rm 11 and Rf 2 calculate the WACC of WTC Stock Book Value 20 000 000 20 000 000 8 per share 2 500 000 shares Stock Market Value 2 500 000 shares x 25 per share 62 500 000 Bonds Book Value 43 000 000 Bonds Market Value 43 000 000 x 95 40 850 000 WACC d v x 1 TC rdebt e v x requity rdebt YTM 7 07 requity CAPM rf B rm rf 02 85 11 02 0965 v 40 850 000 62 500 000 103 350 000 WACC 40 850 000 103 350 000 x 1 35 07 62 500 000 103 350 000 x 0965 0 0763417997097242 7 63 2 Suppose the company in 1 is considering the following expansion projects How would you calculate the required rate of return to use in the NPV analysis of the following Explain a The company is considering an expansion to double the production of its current product The company can issue equity or it can issue debt yielding 7 to pay for the expansion The Company would calculate the required rate of



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