Bonds: Builtrite is planning on offering a $1000 par value, 20 year, 8% coupon bond with an expected selling price of$1025. Flotation costs would be $55 per bond.Preferred Stock: Builtrite could sell a $46 par value preferred with an 8% coupon for $38 a share. Flotation costs wouldbe $6 a share.Common stock: Currently, the stock is selling for $62 a share and has paid a $4.82 dividend. Dividends are expected tocontinue growing at 13%. Flotation costs would be $3.75 a share and Builtrite has $350,000 in available retainedearnings.Assume a 35% tax bracket.Their after-tax cost of internal common (retained earnings) is:22.51%21.78%21.34%21.05%

To calculate the after-tax cost of internal common equity (retained earnings), we can use the…

Answered: Bonds: Builtrite is planning on…

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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Bonds: Builtrite is planning on offering a $1000 par value, 20 year, 6% coupon bond with an expected selling price of $1025. Flotation costs would be $55 pe bond. Preferred Stock: Builtrite could sell a $46 par value preferred with a 6% coupon for $38 a share. Flotation costs would be $2 a share. Common stock: Currently, the stock is selling for $62 a share and has paid a $2.82 dividend. Dividends are expected to continue growing at 11%. Flotation costs would be $ 3.75 a share and Builtrite has $350,000 in available retained earnings. Assume a 25% tax bracket. Their afte -tax cost of internal common (retained earnings) is: 15.72% 16.05% 15.51% 16.58% ა c Bonds: Builtrite is planning on offering a $1000 par value, 20 year, 6% coupon bond with an expected selling price of $1025. Flotation costs would be $55 per bond. Preferred Stock: Builtrite could sell a $46 par value preferred with a 6% coupon for $38 a share. Flotation costs would be $2 a share. Common stock: Currently, the stock is…
Bonds: Builtrite is planning on offering a $1000 par value, 20 year, 7% coupon bond with an expected selling price of $1025 Flotation costs would be $55 per bond. Preferged Stock: Builtrite could sell a $46 par value preferred with a 7% coupon for $38 a share. Flotation costs would be $2 a share Common stock: Currently, the stock is selling for $62 a share and has paid a $2.82 dividend. Dividends are expected to continue owing at 12%. Flotation costs would be $3.75 a share and Builtrite has $350,000 in available retained earnings. Assume a 25% tax bracket. Their after-tax cost of debt is: O18.00% O17.42% O17.07% O 16.84%
YunJun, Inc. is contemplating to issue a convertible bond that would be priced at its $1,000 par value. The bonds would have a 9.00% annual coupon, and each bond could be converted into 25 shares of common stock. The required rate of return on an otherwise similar nonconvertible bond is 11.00%. The stock currently sells for $42.00 a share, has an expected dividend in the coming year of $2.10, and has an expected constant growth rate of 6.00%. What is the estimated floor price of the convertible at the end of Year 3?
Matthews Technology has a $1,000 par value, 20 year convertible bond outstanding with a 10% coupon rate that can be converted into 25 shares of common stock. The common stock is currently selling for $34.00 a share. The convertible bond is selling for $30 more than the conversion value. A competitive, 20 year nonconvertible bond of the same risk class has a 12% annual coupon rate. What is the number of common shares to which the convertible bond can be converted to (Conversion ratio)? Round to the nearest share. Compute the conversion price? Round to 2 decimal places. Compute the conversion value? Round to 2 decimal places. Compute the conversion premium? Round to 2 decimal places. Compute the current selling price of the convertible bond? Round to 2 decimal places. Compute the pure bond value? Round to 2 decimal places. If the common share price goes down to $31.50 and the conversion premium goes up…
Valdes Enterprises is considering issuing a 10-year convertible bond that would be priced at its $1,000 par value. The bonds would have an 8.00% annual coupon, and each bond could be converted into 20 shares of common stock. The required rate of return on an otherwise similar nonconvertible bond is 10.00%. The stock currently sells for $40.00 a share, has an expected dividend in the coming year of $2.00, and has an expected constant growth rate of 5.00%. What is the estimated floor price of the convertible at the end of Year 3?
(Preferred stock valuation) Kendra Corporation's preferred shares are trading for $32 in the market and pay a $4.50 annual dividend. Assume that the market's required yield is 15 percent. a. What is the stock's value to you, the investor? b. Should you purchase the stock? a. The value of the stock to you, the investor, is $ per share. (Round to the nearest cent.)
Bukit, Inc issued a convertible bond that pays 5% semi-annual coupon (Face value is $1,000). If you purchase this bond, you have an option to convert this bond into 20 shares of Sage’s common stock. Today, the convertible bond has 5 years to maturity and its YTM is 5%. The market price of Bukit’s common stock is $48 per share today. If the stock’s beta is 1.5 while the market risk premium is 8% and the risk-free rate is 2%, determine whether it is better for the convertible bond holders to convert their bonds today.
StangWay Corp. stock is trading for $23 per share. StangWay has 24 million shares outstanding and a market debt-equity ratio of 0.59. StangWay's debt is zero coupon debt with a 5-year maturity and a yield to maturity of 9% EAR (effective annual rate). a. Describe StangWay's equity as a call option. What is the maturity of the call option? What is the market value of the asset underlying this call option? What is the strike price of this call option? b. Describe StangWay's debt using a call option.
You are given the following information on Parrothead Enterprises: Debt: Common stock: Preferred stock: 9,600 7.1 percent coupon bonds outstanding, with 24 years to maturity and a quoted price of 105.5 . These bonds pay interest semiannually and have a par value of $1,000. 255,000 shares of common stock selling for $65.10 per share. The stock has a beta of .96 and will pay a dividend of $3.30 next year. The dividend is expected to grow by 5.1 percent per year indefinitely. Market: 8,600 shares of 4.55 percent preferred stock selling at $94.60 per share. The par value is $100 per share. 11.4 percent expected return, risk-free rate of 3.9 percent, and a 21 percent tax rate. Calculate the company's WACC. Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal
You are given the following information on Parrothead Enterprises: Debt: 8,500 7.1 percent coupon bonds outstanding, with 24 years to maturity and a quoted price of 106.75. These bonds pay interest semiannually and have a par value of $2,000. Common stock: 280,000 shares of common stock selling for $65.60 per share. The stock has a beta of 1.06 and will pay a dividend of $3.80 next year. The dividend is expected to grow by 5.1 percent per year indefinitely. Preferred stock: 9,100 shares of 4.55 percent preferred stock selling at $95.10 per share. The par value is $100 per share. Market: 10.9 percent expected return, risk-free rate of 4.15 percent, and a 21 percent tax rate. Calculate the company's WACC.
You are given the following information on 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 pay interest semiannually and have a par value of $1,000. 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. The par value is $100 per share. Market: 11.7 percent expected return, risk-free rate of 3.75 percent, and a 23 percent tax rate. Calculate the company's WACC. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) WACC %
You are given the following information on Parrothead Enterprises: Debt: Common stock: Preferred stock: Market: 8,600 7.2 percent coupon bonds outstanding, with 23 years to maturity and a quoted price of 107. These bonds pay interest semiannually and have a par value of $2,000. WACC 285,000 shares of common stock selling for $65.70 per share. The stock has a beta of 1.02 and will pay a dividend of $3.90 next year. The dividend is expected to grow by 5.2 percent per year indefinitely. 9,200 shares of 4.6 percent preferred stock selling at $95.20 per share. The par value is $100 per share. 10.8 percent expected return, risk-free rate of 4.2 percent, and a 22 percent tax rate. Calculate the company's WACC. Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. %

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