Cullumber Industries has 8 percent coupon bonds outstanding. These bonds have a market price of $954.41, pay interest semiannually, and will mature in six years. The tax rate is 35 percent. The common stock of Cullumber Industries has a beta of 1.6 and the market risk-free rate is 4 percent and the expected return on the market is 9 percent. In addition to common stock, Cullumber has 500,000 preferred shares outstanding that pay a quarterly dividend of $0.40 per share and are currently trading for $20.00 a share. The company's outstanding bonds have a face value of $249,368,720. There are 2.5 million shares of common stock outstanding with a current market price of $98.00 per share. Compute the WACC for Cullumber Industries. (Round intermediate calculation to 4 decimal places, e.g. 15.1253 and round final answer to 2 decimal places, eg. 15.25%)

Cullumber Industries has 8 percent coupon bonds outstanding. These bonds have a market price of $954.41, pay interest semiannually, and will mature in six years. The tax rate is 35 percent. The common stock of Cullumber Industries has a beta of 1.6 and the market risk-free rate is 4 percent and the expected return on the market is 9 percent. In addition to common stock, Cullumber has 500,000 preferred shares outstanding that pay a quarterly dividend of $0.40 per share and are currently trading for $20.00 a share. The company's outstanding bonds have a face value of $249,368,720. There are 2.5 million shares of common stock outstanding with a current market price of $98.00 per share. Compute the WACC for Cullumber Industries. (Round intermediate calculation to 4 decimal places, e.g. 15.1253 and round final answer to 2 decimal places, eg. 15.25%)

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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XYZ Co has 6000 units of bonds outstanding. Each unit has $100 face value, 7% coupon rate with semi-annual payments, and 20 years to maturity. The risk-free rate is 3%, default risk premium for its bond is 2.5%, maturity risk premium is 2%. XYZ has a tax rate of 20%. XYZ Co has 15,000 shares of common stocks. The stock has a standard deviation of return of 32%. A stock market index has a standard deviation of return of 25%. The correlation coefficient between stock return and stock stock index return is 0.86. The stock is expected to pay dividend of $4 in one year and its expected price in one year is $58. The risk-free rate is 3%. The stock market index has an expected return of 12%. 1. Determine the before tax cost of debt, and the after tax cost of debt. 2. Determine the value of each unit of bond, and the total market value of all units of bonds. 3. Determine the beta of the stock, and the cost of equity of the stock using the capital asset pricing model. 4.…
CSNY Corporation has the 13,000 6.4 percent coupon bonds outstanding, with 15 years to maturity and is presently selling at 107% of par value. The bonds pay interest semiannually. CSNY also has 345,000 shares of common stock selling for $76.50 per share. The stock has a beta of 0.9 and will pay a dividend of $3.80 next year. The dividend is expected to grow by 5% per year indefinitely. In addition, CSNT has 10,000 shares of 4.4% preferred stock selling at $86 per share. The market is expected to return 11% and Treasury Bills are expected to return 3.6%. CSNY’s tax rate is 22%. Calculate the firm’s Weighted Average Cost of Capital. (WACC).
A firm has 20 $1,000 face value bonds outstanding. The bonds pay annual coupons and have a coupon rate of 5%. The bonds are currently trading at a price of 1,015 and have 5 years until maturity. The firm also has 2,600 shares of common stock outstanding that trade for $17 per share. The market risk premium is 9%, the risk-free rate is 2.25% and the firm’s beta is 1.6. The corporate tax rate is 21%. What is the firm’s weighted average cost of capital?
ABC Company has publicly traded $1,000 par value, 6% semiannual coupon bonds which mature in 16 years. These bonds have a current market price of $1075. The company also has preferred stock with a $70 par and 6% annual dividend. The market has priced the preferred stock at $89. ABC's common stock has a beta of 1.5. You estimate the risk-free rate to be 3% and the required return on the market to be 14%. The company's average tax rate is 30%. What is this company's after-tax cost of debt? 3.91% 3.71% 3.07% 3.38%
National Products Inc. wants to calculate its weighted average cost of capital (WACC).The company’s CFO has collected the following information:• The company has a long-term bond outstanding, valued at $20 million. The bond is a semiannualcoupon bond with 6% coupon rate, and 5 years left to maturity. The current price is $959.45 for$1,000 par value.• The company’s preferred stock pays a fixed dividend of $2 per share, and the preferred stockprice is $20.• The company’s common stock price is $32 a share, and recently paid a dividend of $2 a share.• The dividend is expected to grow at a constant rate of 6% per year.• The company has the target capital structure of $50 million in equity, $10 million in preferredstock and $20 million in debt.• The company’s tax rate is 40%. What is the company weighted average cost of capital?
Meacham Corp. wants to issue bonds with a 9% semi-annual coupon, a face value of $1,000, and 12 years to maturity. Meacham estimates that the bonds will sell for $1,090. Meacham Corp. common stock currently sells for $30 per share. Meacham can sell additional shares by incurring flotation costs of $3 per share. Meacham paid a dividend yesterday of $4.00 per share and expects the dividend to grow at a constant rate of 5% per year. Meacham also expects to have $12 million of retained earnings available for use in capital budgeting projects during the coming year. Meacham's management team decides to replace all common stock with newly issued ones and form a capital structure with 40% debt and 60% common equity. Meacham's marginal tax rate is 35%. Find out the after-tax cost of debt of Meacham Corp. Assuming Meacham's bonds are its а. only debt and there's no flotation costs. b. Calculate the cost of retained earnings. с. Calculate the cost of new common stock. d. Calculate the weighted…
Meacham Corp. wants to issue bonds with a 9% semi-annual coupon, a face value of $1,000, and 12 years to maturity. Meacham estimates that the bonds will sell for $1,090. Meacham Corp. common stock currently sells for $30 per share. Meacham can sell additional shares by incurring flotation costs of $3 per share. Meacham paid a dividend yesterday of $4.00 per share and expects the dividend to grow at a constant rate of 5% per year. Meacham also expects to have $12 million of retained earnings available for use in capital budgeting projects during the coming year. Meacham's management team decides to replace all common stock with newly issued ones and form a capital structure with 40% debt and 60% common equity. Meacham's marginal tax rate is 35%.
National Products Inc. wants to calculate its weighted average cost of capital (WACC).The company’s CFO has collected the following information:• The company has a long-term bond outstanding, valued at $20 million. The bond is a semiannualcoupon bond with 6% coupon rate, and 5 years left to maturity. The current price is $959.45 for$1,000 par value.• The company’s preferred stock pays a fixed dividend of $2 per share, and the preferred stockprice is $20.• The company’s common stock price is $32 a share, and recently paid a dividend of $2 a share.• The dividend is expected to grow at a constant rate of 6% per year.• The company has the target capital structure of $50 million in equity, $10 million in preferredstock and $20 million in debt.• The company’s tax rate is 40%.a. What is the company’s before-tax cost of debt?
National Products Inc. wants to calculate its weighted average cost of capital (WACC).The company’s CFO has collected the following information:• The company has a long-term bond outstanding, valued at $20 million. The bond is a semiannualcoupon bond with 6% coupon rate, and 5 years left to maturity. The current price is $959.45 for$1,000 par value.• The company’s preferred stock pays a fixed dividend of $2 per share, and the preferred stockprice is $20.• The company’s common stock price is $32 a share, and recently paid a dividend of $2 a share.• The dividend is expected to grow at a constant rate of 6% per year.• The company has the target capital structure of $50 million in equity, $10 million in preferredstock and $20 million in debt.• The company’s tax rate is 40%.a. What is the company’s before-tax cost of debt?Before-tax cost of debt = %b. What is the company’s cost of preferred stock?Cost of preferred stock = %c. What is the company’s cost of common stock?Cost of common stock =
Consider the following information for Evenflow Power Co., Debt: 2,500 bonds that each year pay 5.5 percent of par value as an annual coupon, have a $1,000 par value, and a yield to maturity of 5.25 percent compounded annually. The bonds have 19 years to maturity and currently sell for 103 percent of par (face) value. 57,500 shares outstanding, selling for $59 per share; the Common stock: beta is 1.17. Preferred stock: 8,500 preferred shares that pay a dividend of 5 percent annually on $100 par value, and currently sell for $106 per share. 6.5 percent market risk premium and 5 percent risk-free Market: rate. Assume the company's tax rate is 32 percent. Note: Face value is sometimes used interchangeably with par value. Preferred shares almost always pay a constant dividend, but the dividend is usually quoted as a percent of par value (just like coupons and bonds). So as an example, a 7% preferred dividend on a $100 par value means the annual dividend payment is $7. Required: Find the…
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 %
SantiZerLtd currently has $200 million of market value debt outstanding. The 9 per cent coupon bonds (semi-annual pay) have a maturity of 15 years, a face value of $1000 and are currently priced at $1,024.87 per bond. The company also has an issue of 2 million preference shares outstanding with a market price of $20. The preference shares offer an annual dividend of $1.20. Santi Zer also has 14 million ordinary shares outstanding with a price of $20.00 per share. The company is expected to pay a $2.20 ordinary dividend 1 year from today, and that dividend is expected to increase by 7 per cent per year forever. If the corporate tax rate is 40 per cent, then what is the company’s weighted average cost of capital?

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