1) Weight of Equity FarCry Industries, a maker of telecommunications equipment,

Question

1) Weight of Equity FarCry Industries, a maker of telecommunications equipment, has 2 million shares of common stock outstanding, 1 million shares of preferred stock outstanding, and 10,000 bonds. If the common shares are selling for $27 per share, the preferred shares are selling for $14.50 per share, and the bonds are selling for 98 percent of par, what would be the weight used for equity in the computation of FarCry’s WACC?

2) Weight of Debt FarCry Industries, a maker of telecommunications equipment, has 2 million shares of common stock outstanding, 1 million shares of preferred stock outstanding, and 10,000 bonds. If the common shares are selling for $27 per share, the preferred shares are selling for $14.50 per share, and the bonds are selling for 98 percent of par, what weight should you use for debt in the computation of FarCry’s WACC?

3) Firmwide versus Project-Specific WACCs An all-equity firm is consider- ing the projects shown below. The T-bill rate is 4 percent and the market risk premium is 7 percent. If the firm uses its current WACC of 12 per- cent to evaluate these projects, which project(s), if any, will be incorrectly rejected?

4) In 2000, the S&P 500 Index earned 29.1 percent while the T-bill yield was 5.9 percent. Does this mean the market risk premium was negative? Explain.

Explanation / Answer

As per chegg guidelines we answer 1 question per post. But I have answerted 2 questions in one post. Cannot answer 3 Question as data is not available. Kindly post the remaining questions in next post 1) weight used for equity in the computation of FarCry’s WACC is .6897 Statement showing computation of WACC Particulars No of Shares Market Price per share Market Value Weight Equity or common stock           2,000,000.00                                   27.00                       54,000,000.00 0.6897 Preferred Stock           1,000,000.00                                   14.50                       14,500,000.00 0.1852 Bonds                 10,000.00                                980.00                         9,800,000.00 0.1252                       78,300,000.00                                          1.00 2) weight should you use for debt in the computation of FarCry’s WACC is .1252

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