Tysseland Company’s market and book value capital structures are shown below. There are no preferred stock and short-term debt: Capital Component Market value Book Value Debt $5,000,000 $5,000,000 Common equity $60,000,000 $40,000,000 Bonds have an 8% coupon rate, and they sell at par. Common stock is currently selling at $30 a share. The stockholder’s required rate of return is estimated to be 12%, consisting of a dividend yield of 4% and an expected growth rate of 8%. (The next expected dividend is $1.20, so the dividend yield is $1.20/$30 = 4%.) The marginal tax rate is 40%. What is Tysseland’s WACC?

Tysseland Company’s market and book value capital structures are shown below. There are no preferred stock and short-term debt: Capital Component Market value Book Value Debt $5,000,000 $5,000,000 Common equity $60,000,000 $40,000,000 Bonds have an 8% coupon rate, and they sell at par. Common stock is currently selling at $30 a share. The stockholder’s required rate of return is estimated to be 12%, consisting of a dividend yield of 4% and an expected growth rate of 8%. (The next expected dividend is $1.20, so the dividend yield is $1.20/$30 = 4%.) The marginal tax rate is 40%. What is Tysseland’s WACC?

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter15: Capital Structure Decisions

Section: Chapter Questions

Problem 8P

See similar textbooks

Similar questions

Here is some information about Stokenchurch Inc.: Beta of common stock = 1.2 Treasury bill rate = 4% Market risk premium = 6.5% Yield to maturity on long-term debt = 7% Book value of equity = $340 million Market value of equity = $680 million Long-term debt outstanding = $680 million Corporate tax rate = 21% What is the company's WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) WACC %
Here is some information about Stokenchurch Inc.: Beta of common stock = 1.5 Treasury bill rate = 4% Market risk premium = 6.8% Yield to maturity on long-term debt = 9% Book value of equity = $370 million Market value of equity = $740 million Long-term debt outstanding = $740 million Corporate tax rate = 21% What is the company’s WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Big Industries has the following market-value balance sheet. The stock currently sells for $20 a share, and there are 1,260 shares outstanding. The firm will either pay a $1 per share dividend or repurchase $1,260 worth of stock. Ignore taxes. Liabilities and Assets Equity $ 7,200 Fixed assets 29,300 Debt $11,300 25,200 Cash Equity a. What will be the subsequent price per share if the firm pays a dividend? b. What will be the subsequent price per share if the firm repurchases stock? (Round your answer to the nearest dollar.) c. If total earnings of the firm are $25,500 a year, find earnings per share if the firm pays a dividend. (Do not round intermediate calculations. Round your answer to 3 decimal places.) d. If total earnings of the firm are $25,500 a year, now find earnings per share if the firm repurchases stock. (Do not round intermediate calculations. Round your answer to 3 decimal places.) e. If total earnings of the firm are $25,500 a year, find the price-earnings ratio if the…
You are given the following information for Golden Fleece Financial: Long-term debt outstanding: Current yield to maturity (rdebt) : Number of shares of common stock: Price per share: Book value per share: Expected rate of return on stock (requity : Cost of capital $ 450,000 % 8% 17,500 $ 50.50 Calculate Golden Fleece's company cost of capital. Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. $29 15%
Suppose that Papa Bell Inc. equity is currently selling for $41 per share, with 3.6 million shares outstanding. The firm also has 8000 bonds outstanding, which are selling at 95% of par. Assume Papa Bell was considering an active change to its capital structure so as to have a D/E ratio of 0.5. Which type of security (stocks or bonds) would the firm need to sell to accomplish this? How much would it have to sell? (Enter your answer in dollars not in millions. Do not round immendiage calculations and round your final answer to 2 decimal places.)
Use the following data for the Sara Company to calculate the cost of common stocks (Rs), the cost of Preferred stocks (Rps), and the cost of Debt: (Rd)? Item Symbol Value Risk Free Rate Rf 7% Stock Risk B 1.5 Market Return Rm 25% Interest Rate for Debt Rd (B.T) 9% TAX rate T 5% Preferred Stock Dividend D(ps) 10 Preferred Stock Price P(ps) 100 floatation cost ps FC $4 The cost of Preferred stocks: (Rps)? The cost of Debt: (Rd)?
Use the following data for the Sara Company to calculate the cost of common stocks (Rs), the cost of Preferred stocks (Rps), and the cost of Debt: (Rd)? Item Symbol Value Risk Free Rate Rf 7% Stock Risk B 1.5 Market Return Rm 25% Interest Rate for Deb Rd (B.T) 9% TAX rate T 5% Preferred Stock Dividend D(ps) 10 Preferred Stock Price P(ps) 100 floatation cost ps FC $4 Answer: The cost of common stocks: (Rs)
analyst has obtained the following information Book value of long-term sources of capital: $25,000Book value of common equity: $10,000Book value of preferred stock: $5,000company has 4,000 shares outstanding, which are currently trading at $5 per share. They also have 3,000 preferred shares outstanding which are currently trading at $2 per share. The yield on the debt equals the coupon rate.What is the weight of common equity used to determine the weighted average cost of capital A 56%B 80%C40%D67%E not determined
Big Industries has the following market-value balance sheet. The stock currently sells for $20 a share, and there are 1,300 shares outstanding. The firm will either pay a $1 per share dividend or repurchase $1,300 worth of stock. Ignore taxes. Assets Liabilities and Equity Cash $ 8,000 Debt $ 11,500 Fixed assets 29,500 Equity 26,000 a. What will be the subsequent price per share if the firm pays a dividend? b. What will be the subsequent price per share if the firm repurchases stock? (Round your answer to the nearest dollar.) c. If total earnings of the firm are $32,300 a year, find earnings per share if the firm pays a dividend. (Do not round intermediate calculations. Round your answer to 3 decimal places.) d. If total earnings of the firm are $32,300 a year, now find earnings per share if the firm repurchases stock. (Do not round intermediate calculations. Round your answer to 3 decimal places.) e. If total earnings of the firm are $32,300 a year,…
You have the following information to determine the per share value of a stock using the free cash flow (FCF) method of valuation: The firm has 1.852 billion shares outstanding. The market value of its debt is $3.192 billion. The free cash flow is currently $1.1559 billion. The firm’s equity beta is 0.90; the equity risk premium is 5.5%; the risk-free rate is 5.5%. The before-tax cost of debt is 7%. The tax rate is 40%. The firm has a capital structure of 75% equity and 25% debt. The FCF rate of growth is 3%. Based on the above information, calculate the following: WACC Value of the firm (using the WACC as the discount rate) Total market value of equity Value per share
Big Industries has the following market-value balance sheet. The stock currently sells for $20 a share, and there are 1,300 shares outstanding. The firm will either pay a $1 per share dividend or repurchase $1,300 worth of stock. Ignore taxes. Assets Liabilities and Equity Cash $ 8,000 Debt $ 11,500 Fixed assets 29,500 Equity 26,000 a. What will be the subsequent price per share if the firm pays a dividend? b. What will be the subsequent price per share if the firm repurchases stock? (Round your answer to the nearest dollar.) c. If total earnings of the firm are $32,300 a year, find earnings per share if the firm pays a dividend. (Do not round intermediate calculations. Round your answer to 3 decimal places.) d. If total earnings of the firm are $32,300 a year, now find earnings per share if the firm repurchases stock. (Do not round intermediate calculations. Round your answer to 3 decimal places.) e. If total earnings of the firm are $32,300 a year,…
A. Suppose that Chi Chili’s equity is currently selling for $40 per share, with 2.5 million shares outstanding. If the firm also has 100,000 bonds outstanding, which are selling at 94 percent of par, what are the firm’s current capital structure weights? B. Suppose that Chi Chili’s is considering an active change to their capital structure so as to have a D/E of 0.60 OR 60%, which type of security (stocks or bonds) would they need to sell to accomplish this, and how much would they have to sell?