Bluefield Corporation has 6 million shares of common stock outstanding, 600,000 shares of preferred stock that pays an annual dividend of $8, and 200,000 bonds with a 10 percent coupon (semiannual interest) and 20 years to maturity. At present, the common stock is selling for $50 per share, the bonds are selling for $950.62 per $1,000 of face value, and the preferred stock is selling at $74 per share. The estimated market return is 13%, the risk free rate is 8%, and Bluefield's beta is 1.4. Bluefield's tax rate is 30 percent. What is Bluefield's weighted average cost of capital (WACC)?

Bluefield Corporation has 6 million shares of common stock outstanding, 600,000 shares of preferred stock that pays an annual dividend of $8, and 200,000 bonds with a 10 percent coupon (semiannual interest) and 20 years to maturity. At present, the common stock is selling for $50 per share, the bonds are selling for $950.62 per $1,000 of face value, and the preferred stock is selling at $74 per share. The estimated market return is 13%, the risk free rate is 8%, and Bluefield's beta is 1.4. Bluefield's tax rate is 30 percent. What is Bluefield's weighted average cost of capital (WACC)?

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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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 39% 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: 1. Calculate the current price of the corporate bond? 2. Calculate the current price of the ordinary share if tne average return of the shares in the same industry is 9%? 3. Calculate the current value of the preferred share if the average return of the shares in the same industry is 12% 4. Calculate the current market…
True or False. A company borrows additional financing and as a result their weight of debt increases (holding dollars of equity constant). Because the weight of debt increases, the company's WACC will always decrease. True O False
A corporation has 9,000 bonds outstanding with a 5% annual coupon rate, 7 years to maturity, a $1,000 face value, and a $1,200 market price. The company's 110,000 shares of preferred stock pay a $4 annual dividend, and sell for $40 per share. The company's 500,000 shares of common stock sell for $25 per share and have a beta of 1 The risk free rate is 5%, and the market return is 11%. Calculate cost of debt? Briefly show your steps. Calculate cost of preferred stock? Briefly show your steps. Calculate cost of equity? Briefly show your steps. what is company's pre-tax WACC? Briefly show your steps. What are the weight of debt, preferred stock and equity?Briefly show your steps.
Manshuk
Suppose Westerfield Co. has the following financial information: Debt: 900, 000 bonds outstanding with a face value of $1,000. The bonds currently trade at 85% of par and have 12 years to maturity. The coupon rate equals 7%, and the bonds make semiannual interest payments. Preferred stock: 600,000 shares of preferred stock outstanding; currently trading for $108 per share, paying a dividend of $9 annually. Common stock: 25,000,000 shares of common stock outstanding; currently trading for $185 per share. Beta equals 1.22. Market and firm information: The expected return on the market is 9%, the risk - free rate is 5%, and the tax rate is 21 %. Calculate the weight of debt in the capital structure. (Enter percentages as decimals and round to 4 decimals)
Ahmed Company has 8.5 million shares of common stock outstanding, 250,000 shares of 5 percentpreferred stock outstanding, and 135,000 7.5 percent semiannual bonds outstanding, par value $5,000each. The common stock currently sells for $34 per share (Par value= $10) and has a beta of 1.25, thepreferred stock currently sells for $91 per share, and the bonds have 15 years to maturity and sell for114 percent of par. The market risk premium is 7.5 percent, T-bills are yielding 4 percent, and AhmedCompany tax rate is 36 percent.a. What is the firm’s market value capital structure?b. If Ahmed Company is evaluating a new investment project that has the same risk as the firm’s typicalproject, what rate should the firm use to discount the project’s cash flows? If we use debt 35%, preferredstock 15% and common stock 50%, what will be the discount rate by assuming same cost of eachfinancing?
Gentrix Inc. has two major sources of financing—common stock and long-term debt. They currently have 1,000,000 shares of stock outstanding, which are trading at a price of $20 per share. Two years ago, they issued $5,000,000 of 20-year debt to the general public at par value. The debt pays an annual coupon of 7%. The coupon is paid annually. Given their current capital structure, Gentrix has estimated that their cost of equity is 15%. Gentrix faces a marginal tax rate of 40%. It has been exactly two years since Gentrix issued their debt, and interest rates have increased. If the long-term debt is currently having a yield to maturity of 9%, what is the current value of the outstanding debt? Is it selling at a premium or discount to par value? (Remember that coupon payments of 7% are made annually rather than the semiannually.) Based on Gentrix’s current capital structure, what is the firm’s weighted average cost of capital? Assume that Gentrix currently has a capital structure that is…
Johnny Cake Ltd. has 10 million shares of stock outstanding selling at $23 per share and an issue of $50 million in 9 percent, annual coupon bonds with a maturity of 17 years, selling at 93.5 percent of par. If Johnny Cake’s weighted average tax rate is 34 percent, its next dividend is expected to be $3.00 per share, and all future dividends are expected to grow at 6 percent per year, indefinitely, what is its WACC? 1.Solve for rate on Bond 2.Solve for cost of the stock 3.Solve for WACC. Please show proper steps with explanation.
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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