Part 1WACC. Grey's Pharmaceuticals has a new project that will require funding of $4.04.0 million. The company has decided to pursue an all-debt scenario. Grey's has made agreements with four lenders for the needed financing. These lenders will advance the following amounts at the interest rates shown:Click on the following link in order to copy its content into a spreadsheet.[table]
Lender | Amount | Interest Rate Steven | $1,500,0001,500,000 | | 1111% | Yang | $1,200,0001,200,000 | | 99% | Shepherd | $1,000,0001,000,000 | | 77% | Bailey | $300,000300,000 | | 88% |
[/table]What is the weighted average cost of capital for the $4,000,0004,000,000? Part 1What is the weighted average cost of capital for the $4,000,0004,000,000? (Round to two decimal places.)[input]enter your response here %

Question

Part 1WACC. ​Grey's Pharmaceuticals has a new project that will require funding of ​$4.04.0 million. The company has decided to pursue an​ all-debt scenario. ​ Grey's has made agreements with four lenders for the needed financing. These lenders will advance the following amounts at the interest rates​ shown:Click on the following link in order to copy its content into a spreadsheet.[table]
Lender | Amount | Interest Rate Steven | ​$1,500,0001,500,000 |  | 1111​% |  Yang | ​$1,200,0001,200,000 |  | 99​% |  Shepherd | ​$1,000,0001,000,000 |  | 77​% |  Bailey | ​$300,000300,000 |  | 88​% | 
[/table]What is the weighted average cost of capital for the ​$4,000,0004,000,000​? Part 1What is the weighted average cost of capital for the ​$4,000,0004,000,000​? ​(Round to two decimal​ places.)[input]enter your response here ​%

BlackTom AI · Accepted Answer

To evaluate the weighted average cost of capital (WACC) in an all-debt scenario, we only consider the cost of debt since there is no equity financing involved. First, confirm the total financing amount and the individual lenders with their amounts and interest rates. The project requires 4.0 million, funded by four loans: Steven 1.5M at 11%, Yang 1.2M at 9%, Shepherd 1.0M at 7%, and Bailey 0.3M at 8%.

Next, compute the contribution to the total annual interest for each lender by multiplying the amount by its interest rate:
- Steven: 1.5M × 11% = 0.1650M
- Yang: 1.2M × 9% = 0.1080M
- Shepherd: 1.0M × 7% = 0.0700M
- Bailey: 0.3M × 8% = 0.0240M

Sum of all annual interest costs equals 0.1650 + 0.1080 + 0.0700 + 0.0240 = 0.3670M.

Now divide this total annual interest by the total financing amount (4.0M) to obtain the WACC under all-debt financing: 0.3670 / 4.0 = 0.09175, which is 9.175%. Rounding to two decimal places gives 9.18%.

A few checks and clarifications help avoid common pitfalls:
- Ensure you use weights that sum to the total funding (1.5 + 1.2 + 1.0 + 0.3 = 4.0M).
- Use the nominal interest rates as given for each lender; there is no tax shield consideration in the basic WACC calculation unless specified.
- Verify the data hygiene: the table values appear as 11%, 9%, 7%, and 8% for the four lenders, which aligns with typical exam inputs; misreading digits could lead to incorrect results.

If any numbers were misread or if rounding conventions differ (e.g., rounding intermediate steps), the final percentage could shift slightly, but with the provided numbers the result centers around 9.18%.

Test:FINAL

查看解析

登录即可查看完整答案

类似问题

Sixx AM Manufacturing has a target debt—equity ratio of 0.68. Its cost of equity is 16 percent, and its cost of debt is 9 percent. If the tax rate is 34 percent, what is the company’s WACC?

Now, instead of giving you information about dividend and the growth rate, assume that the beta of the firm's stock is 1 and the risk free-rate is 5%, and the market premium is 10%. What is the firm's WACC?

When using a DCF method with free cash flows to the firm (FCFF) to value a firm, what measure should we use for the discount rate?

Question textRio Tinto has $120 million in the capital, of which shareholders contribute 30%. Shareholders' required rate of return is 10% p.a. Creditors charge 6% p.a. interest. Rio Tinto's Weighted Average Cost of Capital is Answer 1 Question 9[input]% (round to 2 d.p)

(Weighted average cost of capital) Great Minds Inc. has a target capital structure of 45% debt, 35% preferred stock, and 20% common stock. The before-tax costs of debt, preferred stock, and common stock are 7%, 9%, and 15%, respectively. What is Great Mind’s after-tax WACC? Assume a 35% tax rate.

更多留学生实用工具

考试浏览器助手

风格化写作助手

论文查重助手

文献引用助手

课堂转译助手

课堂笔记助手

Quiz搜索助手

学校历年真题

智能刷题助手

智能匹配练习

希望你的学习变得更简单