A firm has 5,000,000 shares of common stock outstanding with a market priceof $9.00 per share. It has 25,000 bonds outstanding, each selling for $1.100.The bonds mature in 12 years, have a coupon rate of 8.5%, and pay couponsannually. The firm's beta is 1.4, the risk free rate is 5%, and the market riskpremium is 9%. The tax rate is 35%. Calculate the WACC.8.29%10.84%12.71%9.33%13.67%

Weighted average cost of capital (WACC) is the overall cost of the funds deployed in a company or…

Answered: A firm has 5,000,000 shares of common…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Company A just paid dividends of $5 per share. Company A will increase its dividends by 5% every year forever. Company A pays dividends once per year, at the end of the year. The standard deviation for Company A’s stock returns is 35% and its covariance with the market is 0.15. The expected return on the market portfolio is 25%, and the standard deviation of the market portfolio is 35%. Bond yield for government bonds is 5%. According to dividend discount model and the capital asset pricing model to estimate the appropriate discount rate, What should be Company A’s share price?
Blooming Ltd. currently has the following capital structure: Debt: $2,500,000 par value of outstanding bond that pays annually 12% coupon rate with an annual before-tax yield to maturity of 10%. The bond issue has face value of $1,000 and will mature in 25 years. Ordinary shares: 65,000 outstanding ordinary shares. The firm plans to pay a $7.50 dividend per share in the next financial year. The firm is maintaining 3% annual growth rate in dividend, which is expected to continue indefinitely. Preferred shares: 40 000 outstanding preferred shares with face value of $100, paying fixed dividend rate of 149%. Company tax rate is 30%. Required: Complete the following tasks: a) Calculate the current price of the corporate bond? b) Calculate the current price of the ordinary share if the average return of the shares in the same industry is 99%6. c) Calculate the current value of the preferred share if the average retum of the shares in the same industry is 12% d) Calculate the current market…
A&P Inc., the grocery store chain, has 6 million shares of common stock outstanding which currently trade for $40 per share. The company also has 150,000 bonds each with a face value of $1,000 and annual coupons of $50. The bonds have 6 years to maturity and the next coupon is due in one year. The yield on the bonds is 5%. The company's beta is 1.05, the risk-free rate is 3%, and the expected return on the market is 8%. The tax rate is 35%. What is A&P's WACC? Express your answer in percentage form rounded to two decimal places. WACC = ?%
What is the WACC for a company with the following information: Equity Information: 50 million shares, $80 per share, Beta = 1.15, Market risk premium =9%, Risk-free rate = 5%. Debt Information: 1 million outstanding bonds with a face value of $1,000 each. Current Price = $1,100, Coupon rate = 9%, semiannual coupons, 15 years to maturity Tax rate = 20%
The firm's 5.42% coupon bond issue trades at par, matures in 25 years and pays interest semi-annually. The firm recently paid a $4.32 preferred stock dividend per share while its price is $95 per share. The current risk-free rate is 4.76% and the current market risk premium is 3.54%. The firm's beta is .91. The firm's tax rate is 21%. What is the After-tax Cost of Debt?
Blooming Ltd. currently has the following capital structure: Debt: $2,500,000 par value of outstanding bond that pays annually 12% coupon rate with an annual before-tax yield to maturity of 10%. The bond issue has face value of $1,000 and will mature in 25 years. Ordinary shares: 65,000 outstanding ordinary shares. The firm plans to pay a $7.50 dividend per share in the next financial year. The firm is maintaining 3% annual growth rate in dividend, which is expected to continue indefinitely. Preferred shares: 40 000 outstanding preferred shares with face value of $100, paying fixed dividend rate of 14%. Company tax rate is 30%. Required: Complete the following tasks: Calculate the current price of the corporate bond?
Spartan Machinery stock trades at $60 per share with a beta of 1.5, an estimated market return of 12%, and a risk free rate of 5%. There are 20 million shares outstanding. The company has bonds with a face value $1 billion outstanding and a market value of $980 million. The coupon rate is 9% (semiannual coupons) and there are 10 years to maturity. The company has a tax rate of 38%. What is the WACC?
Jeff Fisher Industries finances its projects with 40% debt, 10% preferred stock, and 50% common stock. • The company just issued 10-year bonds with a coupon rate of 11% that currently trade at $1,446.32 (semi-annually compounded). Newly issued preferred stock will pay annual dividends of $2 per share. The current price of preferred stock is $25 per share. • The risk-free rate is 6%. The market rate of return is 14%. Fisher Industries' beta is equal to 0.9. The company's tax rate is 40%. The flotation cost of issuing preferred stock is 10%.
A firm has 5 million shares of stock outstanding and 63.000 number of 6.80% annual coupon bonds outstanding. par value is $700 each. The stock currently sells for $19 per share and has a beta of 1.57, and the bonds have 8 years to maturity and sell for 96% of par, and their yield to maturity is 7.48%. The expected return on the market portfolio is 11%, T-bills are yielding 4%, and the firm's tax rate is 35%. What is the firm's market value capital structure ( in terms of Debt/Equity ratio) and WACC?
Blooming Ltd. currently has the following capital structure: Debt: $2,500,000 par value of outstanding bond that pays annually 12% coupon rate with an annual before-tax yield to maturity of 10%. The bond issue has face value of $1,000 and will mature in 25 years. Ordinary shares: 65,000 outstanding ordinary shares. The firm plans to pay a $7.50 dividend per share in the next financial year. The firm is maintaining 3% annual growth rate in dividend, which is expected to continue indefinitely. Preferred shares: 40 000 outstanding preferred shares with face value of $100, paying fixed dividend rate of 14%. Company tax rate is 30%. Required: Complete the following tasks: Calculate the current price of the corporate bond? Calculate the current price of the ordinary share if the average return of the shares in the same industry is 9%? Calculate the current value of the preferred share if the average return of the shares in the same industry is 12% Calculate the current market…

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