Waiting for answer This question has not been answered yet. You can hire a professional tutor to get the answer.

QUESTION

You work for an investment banking firm and have been asked by management of Soco Corporation (not real), a software development company, to

You work for an investment banking firm and have been asked by management of Soco Corporation (not real), a software development company, to calculate its weighted average cost of capital, to use in evaluating a new company investment. The firm is considering a new investment in a warehousing facility, which it believes will generate an internal rate of return of 11.5%. The market value of Vestor's capital structure is as follows:

Source of Capital

Market Value

Bonds

$10,000,000

Preferred Stock

$2,000,000

Common Stock

$8,000,000

To finance the investment, Soco has issued 20 year bonds with a $1,000 par value, 6% coupon rate and at a market price of $950. Preferred stock paying a $2.50 annual dividend was sold for $25 per share. Common stock of Vestor is currently selling for $50 per share and has a Beta of 1.2. The firm's tax rate is 34%. The expected market return of the S&P 500 is 13% and the 10-Year Treasury note is currently yielding 3.5%.

Determine what discount rate (WACC) Soco should use to evaluate the warehousing facility project.

Assess whether Soco should make the warehouse investment

Show more
LEARN MORE EFFECTIVELY AND GET BETTER GRADES!
Ask a Question