Now (use the following information) suppose that:The cost of debt (ra) is 3.875% (before tax),• Flotation costs (F) = 7% of issue price,The debt is trading at $1,025.00,There are 7,250 bonds outstanding,• The tax rate is .35,The LAST dividend paid yesterday (Do) = $4.56,The expected constant growth rate (g) = 2.75%,Beta = 1.55,TRF= 1.14%,= 4.5%, (market risk premium)The firm has 250,000 shares of common stock outstanding,Common stock shares are trading at $47.32/share (Po).RPmGiven the above information, what is the Market value of the firm's debt?$.Given the above information, what is the Market value of the firm's equity?$.Now calculate the weight of debt for the firm (Wa). You will use this to calculate the WACC.Now calculate the weight of equity for the firm (Wee). You will use this to calculate the WACC.What is the cost of existing common equity (retained earnings)?(Briefly describe your approach/method as well as your answer)What is the cost of NEW common equity?(Briefly describe your approach/method as well as your answer)What is the firm's WACC using existing common equity?(Briefly describe your approach/method as well as your answer)

Market value of debt = No. of bonds trading in market * Price per bond = 7,250 * $1,025 =…

Answered: Given the above information, what is…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter17: Dynamic Capital Structures And Corporate Valuation

Section: Chapter Questions

Problem 3P

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The Cost of Debt and Flotation Costs. Suppose a company will issue new 25-year debt with a par value of $1,000 and a coupon rate of 9%, paid annually. The issue price will be $1,000. The tax rate is 25%. If the flotation cost is 2% of the issue proceeds, then what is the after-tax cost of debt? Round your answer to two decimal places. % What if the flotation costs were 10% of the bond issue? Round your answer to two decimal places. %
Now (use the following information) suppose that: The cost of debt (ra) is 3.875% (before tax), • Flotation costs (F) = 7% of issue price, The debt is trading at $1,025.00, There are 7,250 bonds outstanding, • The tax rate is .35, The LAST dividend paid yesterday (Do) = $4.56, The expected constant growth rate (g) = 2.75%, Beta = 1.55, TRF = 1.14%, RPm = 4.5%, (market risk premium) The firm has 250,000 shares of common stock outstanding, Common stock shares are trading at $47.32/share (Po). Now calculate the weight of equity for the firm (Wee). You will use this to calculate the WACC. What is the cost of existing common equity (retained earnings)? (Briefly describe your approach/method as well as your answer) What is the cost of NEW common equity? (Briefly describe your approach/method as well as your answer) What is the firm's WACC using existing common equity? (Briefly describe your approach/method as well as your answer) Market Value of Debt - $7,431,250 Market Value of Equity -…
(siyjod 1. Profit margin is 20% and the dividend payout ratio is 60%. Last year, total assets were RO 15,000 and sales represent 50% of total assets. The target debt/equity ratio (D/E) is 0.65. 1.1. What is the sustainable growth rate (SGR)? Interpret. 1.2. What is the internal growth rate (IGR)? Interpret.
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Edwards Construction currently has debt outstanding with a market value of $75,000. The company has a WACC of 9 percent and has EBIT of $8,750 in the next year. The tax rate is 20%. What is the debt-to-value ratio if the EBIT’s growth rate is 5%? a. 42.86% b. 39.33% c. 96.42% d. 32.45%
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A firm had a debt ratio of 0.85. The pretax cost of debt is 8% and the reqiured return on asset is 15.5%. What is the cost of equity if we factorin the firms tax rate of 24%? A) 19.53 B) 18.92 C) 21.57 D) 20.35 E) 20.96
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Given the above information, what is the Market value of the firm's debt? $. Given the above information, what is the Market value of the firm's equity? $. Now calculate the weight of debt for the firm (Wa). You will use this to calculate the WACC.