Weighted Average Cost of Capital (Corporate Finance), business and finance homework help

  

Please see attached requirements for writing an analysis of the described company situation. The focus is on weighted average cost of capital.
requirements_for_weighted_average_cost_of_capital.docx

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Weighted Average Cost of Capital
Objective: To demonstrate the steps in calculating a company’s weighted average cost of
capital using the capital asset pricing model (CAPM) and its use in making financial
investments.
Steps to completing this analysis:
The situation: You have been asked by management of Premier Corporation (a fictional
company), a software development company, to calculate its weighted average cost of capital, to
use in evaluating a new company investment. Premier 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 Premier’s capital structure is as follows:
Source of Capital
Bonds
Preferred Stock
Common Stock
Market Value
$10,000,000
$2,000,000
$8,000,000
To finance this investment, Premier has issued 20 year bonds with a $1,000 per 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 Premier 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%.
You must use the above information to write an analysis that includes the following:
1. Determine what discount rate (WACC) Premier should use to evaluate the
warehousing facility project.
2. Assess whether Premier should make the warehouse investment.
3. Show all calculations and analysis in the presentation.
4. Incorporate Microsoft Word tables when appropriate.
5. Analysis should be a minimum of 900 words.
6. Cite all works that you used. [For reference, this class is using the 11th edition of
Fundamentals of Corporate Finance by Ross, Westerfield, and Jordan (2016)]
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