This essay focuses on Weighted Average Cost of Capital. This also includes filling your information on the cover page.
firstly, This assignment is an individual assignment.
Secondly, The Assignment must be submitted only in WORD format via allocated folder on Blackboard.
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further, Students are advised to make their work clear and well presented. This also includes filling your information on the cover page. details;
Firstly, Students must mention question number clearly in their answer.
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Q1: Meet Mr. Mohammed, owner of the AL-SALAMAH Company. He would like to complete his financial forecast for next year and wonder if he could use the percentage of sales method. He has determined that his sales will increase by 15% annually over the next three years. If costs are proportional to sales at 80%, and last year’s sales were SAR 2,000, what is the projected net income in year 3? [Marks 2]
Q3: Calculate Weighted Average Cost of Capital (WACC) if tax rate for a firm is 30 and firm’s capital mix consist of $150 million debt @ 7 % return and $500 million equity requiring a 12% return. [Marks 2]
WACC=(weight of equity*cost of equity)+(weight of debt*after tax cost of debt)
Total capital=debt value+equity value=150+500=650 million
Weight of debt=debt value/Total capital=150/650=23.077%
weight of equity=equity value/Total capital=500/650=76.923%
after tax cost of debt=cost of debt*(1-tax rate)=7%*(1-30%)=7%*70%=4.9%
Cost of debt after-tax=7*(1-tax rate)
Total value=(150+500)=$650 million
WACC=Respective cost*Respective weight
This answer I take from chegg I don’t now this write or not.. please, Resolve your own way