Bombardier Inc has common stock trading at a price of $15, and a market capitalization of $8 billion. The firm also has preferred stock worth a total of $2 billion, currently trading at $23 per share and paying a dividend of $2.75 per share. The firm's beta is 0.93, the risk-free rate is3.2%, and the market risk premium is 7%. The firm has $12 billion of debt with a yield to maturity of 5%. If the firm's tax rate is 20%, what is Bombardier's WACC?O A. 7.3%OB. 8.56%O C. 4.12%O D. 7.57%OE. 6.8%

The weighted average cost of capital is the cost of capital after consideration of weights of…

Answered: Bombardier Inc has common stock trading…

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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Examine the following book-value balance sheet for University Products Incorporated. The preferred stock currently sells for $15 per share and pays a dividend of $3 a share. The common stock sells for $16 per share and has a beta of 0.9. There are 2 million common shares outstanding. The market risk premium is 9%, the risk-free rate is 5%, and the firm's tax rate is 21%. Assets Cash and short-term securities Accounts receivable Inventories Plant and equipment. Total $2.0 3.0 7.0 21.0 $ 33.0 a. Market debt-to-value ratio b. WACC BOOK VALUE BALANCE SHEET (Figures in $ millions) Liabilities and Net Worth Bonds, coupon = 6%, paid annually (maturity = 10 years, current. yield to maturity = 8%) Preferred stock (par value $15 per share) Common stock (par value $0.20) Additional paid-in stockholders' equity Retained earnings Total a. What is the market debt-to-value ratio of the firm? b. What is University's WACC? Note: For all the requirements, do not round intermediate calculations. Enter…
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Examine the following book-value balance sheet for University Products Inc. The preferred stock currently sells for $15 per share and pays a dividend of $3 a share. The common stock sells for $16 per share and has a beta of 0.7. There are 1 million common shares outstanding. The market risk premium is 8%, the risk-free rate is 4%, and the firm’s tax rate is 21%. BOOK-VALUE BALANCE SHEET (Figures in $ millions) Assets Liabilities and Net Worth Cash and short-term securities $ 2.0 Bonds, coupon = 6%, paid annually(maturity = 10 years, current yield to maturity = 7%) $ 10.0 Accounts receivable 5.0 Preferred stock (par value $10 per share) 3.0 Inventories 9.0 Common stock (par value $0.10) 0.1 Plant and equipment 22.0 Additional paid-in stockholders’ equity 8.9 Retained earnings 16.0 Total $ 38.0 Total $ 38.0 a. What is the market debt-to-value ratio of the firm? b. What is University’s…
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Examine the following book-value balance sheet for University Products Inc. The preferred stock currently sells for $15 per share and pays a dividend of $3 a share. The common stock sells for $16 per share and has a beta of 0.6. There are 3 million common shares outstanding. The market risk premium is 10%, the risk-free rate is 6%, and the firm's tax rate is 21%. BOOK-VALUE BALANCE SHEET (Figures in $ millions) Assets Liabilities and Net Worth Cash and short-term securities $ 1.0 5.0 Bonds, coupon = 78, paid annually (maturity = 10 years, current yield to maturity = 8%) Preferred stock (par value $10 per share) $10.0 Accounts receivable 3.0 Inventories Common stock (par value $0.10) Additional paid-in stockholders' equity Retained earnings 9.0 0.3 Plant and equipment 20.0 11.7 10.0 $35.0 $35.0 Total Total a. What is the market debt-to-value ratio of the firm? b. What is University's WACC? (For all the requirements, do not round intermediate calculations. Enter your answers as a percent…
ABC Corp has 1.4 million shares common with a market value of $20 per share. Its debt has a face value of $5 million and trades at 93 % of face in the market. The risk free rate is 4%, risk premium is 7% and ABC’s β=.74. Tax rate is 40% and the current yield on market debt is 11%. Find the firm’s WACC
The ABC Co. has 1.4 million shares of stock outstanding. The stock currently sells for $20 pershare. The firm’s debt is $4.65 million and the average cost of debt is 11 percent. The risk-freerate is 8 percent, and the market risk premium is 7 percent. You’ve estimated that the companyhas a beta of .74. If the corporate tax rate is 34 percent, what is the WACC of this Company?Show detailed calculation
Examine the following book - value balance sheet for University Products Incorporated. The preferred stock currently sells for $15 per share and pays a dividend of $3 a share. The common stock sells for $20 per share and has a beta of 0.7. There are 2 million common shares outstanding. The market risk premium is 12%, the risk-free rate is 8%, and the firm's tax rate is 21%. BOOK- VALUE BALANCE SHEET (Figures in $ millions) Assets Liabilities and Net Worth Cash and short- term securities $ 2.0 Bonds, coupon = 5%, paid annually (maturity = 10 years, current yield to maturity = 7% ) $ 10.0 Accounts receivable 3.0 Preferred stock (par value $20 per share) 3.0 Inventories 7.0 Common stock (par value $0.10) 0.2 Plant and equipment 25.0 Additional paid - in stockholders' equity 11.8 Retained earnings 12.0 Total $ 37.0 Total $ 37.0 What is the market debt- to-value ratio of the firm? What is University's WACC?
The total book value of the firm's equity is $10 million, book value per share is $20. The stock sells for a price of $35 per share, and the cost of equity is 13%. The firm's bonds have a face value of $4 million and sell at a price of 120% of face value. The yield to maturity on the bonds is 7%, and the firm's tax rate is 35%. Find the WACC of William Tell Computers. (Do not round intermediate calculations. Round your answer to 2 decimal pleces.) WACC

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