b. The Saunders Investment Bank has the following financing outstanding. What is the WACC for the company? Debt: 60,000 bonds with a coupon rate of 6 percent and a current price quote of 109.5; the bonds have 20 years to maturity. 230,000 zero coupon bonds with a price quote of 17.5 and 30 years until maturity. Preferred stock: 150,000 shares of 4 percent preferred stock with a current price of GH¢ 79, and a par value of GH¢ 100. Common stock: 2,600,000 shares of common stock; the current price is GH¢ 65 and the beta of the stock is 1.15. Market: The corporate tax rate is 40 percent, the market risk premium is 7 percent, and the risk- free rate is 4 percent.

b. The Saunders Investment Bank has the following financing outstanding. What is the WACC for the company? Debt: 60,000 bonds with a coupon rate of 6 percent and a current price quote of 109.5; the bonds have 20 years to maturity. 230,000 zero coupon bonds with a price quote of 17.5 and 30 years until maturity. Preferred stock: 150,000 shares of 4 percent preferred stock with a current price of GH¢ 79, and a par value of GH¢ 100. Common stock: 2,600,000 shares of common stock; the current price is GH¢ 65 and the beta of the stock is 1.15. Market: The corporate tax rate is 40 percent, the market risk premium is 7 percent, and the risk- free rate is 4 percent.

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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The Saunders Investment Bank has the following financing outstanding. What is the WACC for the company? Debt: 60,000 bonds with a coupon rate of 6 percent and a current price quote of 109.5; the bonds have 20 years to maturity. 230,000 zero coupon bonds with a price quote of 17.5 and 30 years until maturity. Preferred stock: 150,000 shares of 4 percent preferred stock with a current price of GH79, and a par value of GHC100. Common stock: 2,600,000 shares of common stock; the current price is GHC65 and the beta of the stock is 1.15. Market: the corporate tax rate is 40 percent, the market risk premium is 7 percent, and the risk-free rate is 4 percent.
5. A securities firm has provided the balance sheet below. Assets ($ millions) $ 34 Liabilities and Equity ($ millions) Short-term funding Cash $ 27 Debt securities 175 Bonds 300 Equity securities 400 Debentures 197 Other assets 12 Equity 97 Total Assets $ 621 Total Liabilities and Equity $ 621 The debt securities have an annual 7.25% coupon rate, 22 years to maturity and a yield to maturity of 6.75%. The market value of the equity securities and the other assets is equal to their book value. The firm has 500,000 shares outstanding and the price per share is $35.67. a. Calculate the firm's aggregate indebtedness to net capital ratio. b. Calculate the firm's highly liquid assets to total liabilities ratio. Based on the firm's ratios from a and b, is it in compliance with Rule 15C 3-1? Why or why not? C.
The Lewin Inc. has the following financing outstanding. What is the WACC for the company? Debt 60,000 bonds with an 8% coupon rate and a quoted price of 110; the bonds have 30 years to maturity; the bonds make annual payments; $1,000 par value. Preferred stock 100,000 shares of 6% preferred with a current price of $150, and a par value of $100. 2,000,000 shares of common stock, the current price is $80, and the beta of the stock is 1.2. The corporate tax rate is 25%, the market risk premium is 6%, and the risk-free rate is 3%. Common stock Market (3) What is the cost of common stocks?
The Lewin Inc. has the following financing outstanding. What is the WACC for the company? Debt 60,000 bonds with an 8% coupon rate and a quoted price of 110; the bonds have 30 years to maturity; the bonds make annual payments; $1,000 par value. 100,000 shares of 6% preferred with a current price of $150, and a par value of $100. 2,000,000 shares of common stock, the current price is $80, and the beta of the stock is 1.2. The corporate tax rate is 25%, the market risk premium is 6%, and the risk-free rate is 3%. Preferred stock Common stock Market What is the weighted average cost of capital for Lewin Inc.?
The Saunders Investment Bank has the following financing outstanding. Debt: 47,000 bonds with a coupon rate of 5.2 percent and a current price quote of 105.5; the bonds have 16 years to maturity and a par value of $1,000. 16,300 zero coupon bonds with a price quote of 25.3, 25 years until maturity, and a par value of $10,000. Both bonds have semiannual compounding. Preferred stock: 142,000 shares of 3.7 percent preferred stock with a current price of $89 and a par value of $100. Common stock: 2,040,000 shares of common stock; the current price is $79 and the beta of the stock is 1.15. Market: The corporate tax rate is 22 percent, the market risk premium is 7.2 percent, and the risk-free rate is 3.2 percent. What is the WACC for the company?
The Lewin Inc. has the following financing outstanding. What is the WACC for the company? Debt 60,000 bonds with an 8% coupon rate and a quoted price of 110; the bonds have 30 years to maturity; the bonds make annual payments; $1,000 par value. 100,000 shares of 6% preferred with a current price of $150, and a par value of $100. 2,000,000 shares of common stock, the current price is $80, and the beta of the stock is 1.2. The corporate tax rate is 25%, the market risk premium is 6%, and the risk-free rate is 3%. Preferred stock Common stock Market (2) What is the cost of Preferred stocks?
The Lewin Inc. has the following financing outstanding. What is the WACC for the company? Debt 60,000 bonds with an 8% coupon rate and a quoted price of 110; the bonds have 30 years to maturity; the bonds make annual payments; $1,000 par value. 100,000 shares of 6% preferred with a current price of $150, and a par value of $100. 2,000,000 shares of common stock, the current price is $80, and the beta of the stock is 1.2. The corporate tax rate is 25%, the market risk premium is 6%, and the risk-free rate is 3%. Preferred stock Common stock Market (1) What is the aftertax cost of the debt? (Note:7%
PLEASE SHOW CALCULATION AND FORMULA, THANKYOUCompany A has the following:Debt: 50,000 bonds with a coupon rate of 5.7 percent and a current price quote of 106.5; the bonds have 20 years to maturity. 200,000 zero coupon bonds with a price quote of 17.5 and 30 years until maturity. Preferred stock: 125,000 shares of 4 percent preferred stock with a current price of $79, and a par value of $100. Common stock: 2,300,000 shares of common stock; the current price is $65, and the stock beta is 1.20. Market: The corporate tax rate is 40 percent, the market risk premium is 7 percent, and the risk-free rate is 4 percent. a. What is the cost of equity? (0.75) b. What is the cost of debt after tax
The Lewin Inc. has the following financing outstanding. What is the WACC for the company? Debt 60,000 bonds with an 8 % coupon rate and a quoted price of 110; the bonds have 30 years to maturity; the bonds make annual payments; $1,000 par value. 100,000 shares of 6% preferred with a current price of $150, and a par value of $100. 2,000,000 shares of common stock, the current price is $80, and the beta of the stock is 1.2 The corporate tax rate is 25%, the market risk premium is 6%, and the risk-free rate is 3% Preferred stock Common stock Market Required: (1) What is the aftertax cost of the debt?
You have the following information about a company:Debt: 5,000 3% bonds with twelve years to maturity. The face value of the bond is $1000. The bonds currently sell for $1190 and the bonds make semi-annual paymentsEquity: 125,000 shares outstanding selling for $65 per share. The beta is 1.35. The last dividend paid was $3.25.Market: There is a 5% market risk premium. The risk free rate is 2%. The corporate tax rate is 25%Given the above information, calculate the firm’s WACC.
The IPO Investment Bank has the following financing outstanding. Debt: 20,000 bonds with a coupon rate of 12 percent and a current price quote of 110; the bonds have 20 years to maturity. 190, 000 zero coupon bonds with a price quote of 20.5 and 30 years until maturity. Both bonds have a par value of $1,000 and semiannual coupons. Preferred stock: 110,000 shares of 10 percent preferred stock with a current price of $85, and a par value of $100. Common stock: 2,200, 000 shares of common stock; the current price is $71, and the beta of the stock is 1.45. Market: The corporate tax rate is 21 percent, the market risk premium is 5 percent, and the risk - free rate is 2 percent. What is the WACC for the company? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
You are given the following information concerning Parrothead Enterprises: Debt: 9,300 6.5 percent coupon bonds outstanding, with 22 years to maturity and a quoted price of 104.75. These bonds have a par value of $1,000 and pay interest semiannually. Common stock: 240,000 shares of common stock selling for $64.80 per share. The stock has a beta of .93 and will pay a dividend of $3.00 next year. The dividend is expected to grow by 5.3 percent per year indefinitely. Preferred stock: 8,300 shares of 4.65 percent preferred stock selling at $94.30 per share. Market: 11.7 percent expected return, a risk-free rate of 3.75 percent, and a 23 percent tax rate. What is the firm's cost of each form of financing? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

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