You have the following information about Burgundy Basins, a sink manufacturer. Equity shares outstanding 20 million Stock price per share $ 42 Yield to maturity on debt 6.5 % Book value of interest-bearing debt $ 365 million Coupon interest rate on debt 4.7 % Market value of debt $ 260 million Book value of equity $ 440 million Cost of equity capital 12.4 % Tax rate 35 % Burgundy is contemplating what for the company is an average-risk investment costing $44 million and promising an annual ATCF of $5.2 million in perpetuity. a. What is the internal rate of return on the investment? (Round your answer to 2 decimal places.) b. What is Burgundy's weighted-average cost of capital? (Round your answer to 2 decimal places.)
You have the following information about Burgundy Basins, a sink manufacturer. Equity shares outstanding 20 million Stock price per share $ 42 Yield to maturity on debt 6.5 % Book value of interest-bearing debt $ 365 million Coupon interest rate on debt 4.7 % Market value of debt $ 260 million Book value of equity $ 440 million Cost of equity capital 12.4 % Tax rate 35 % Burgundy is contemplating what for the company is an average-risk investment costing $44 million and promising an annual ATCF of $5.2 million in perpetuity. a. What is the internal rate of return on the investment? (Round your answer to 2 decimal places.) b. What is Burgundy's weighted-average cost of capital? (Round your answer to 2 decimal places.)
Chapter12: The Cost Of Capital
Section: Chapter Questions
Problem 7P
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You have the following information about Burgundy Basins, a sink manufacturer.
Equity shares outstanding | 20 | million | |
Stock price per share | $ | 42 | |
Yield to maturity on debt | 6.5 | % | |
Book value of interest-bearing debt | $ | 365 | million |
Coupon interest rate on debt | 4.7 | % | |
Market value of debt | $ | 260 | million |
Book value of equity | $ | 440 | million |
12.4 | % | ||
Tax rate | 35 | % | |
Burgundy is contemplating what for the company is an average-risk investment costing $44 million and promising an annual ATCF of $5.2 million in perpetuity.
a. What is the
b. What is Burgundy's weighted-average cost of capital? (Round your answer to 2 decimal places.)
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