Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Transcribed Image Text:### Financial Overview of Sunrise Corporation
#### Balance Sheet Summary
**Assets:**
- **Current assets:** $2,000
- **Net fixed assets:** $3,000
- **Total assets:** $5,000
**Liabilities and Equity:**
- **Accounts payable and accruals:** $900
- **Short-term debt:** $100
- **Long-term debt:** $1,100
- **Preferred stock (10,000 shares):** $250
- **Common stock (50,000 shares):** $1,300
- **Retained earnings:** $1,350
- **Total common equity:** $2,650
- **Total liabilities and equity:** $5,000
#### Key Financial Information
- **Earnings per share (EPS) last year:** $3.20
- **Current stock price:** $52.00
- **Last year's dividend (D₀):** $2.25
- **Flotation cost for new common stock:** 10%
- **Projected dividend growth rate:** 8.8%
- **Preferred stock dividend:** $2.90 per share
- **Preferred stock price:** $25.00 per share
#### Tax and Market Data
- **Firm’s before-tax cost of debt:** 12%
- **Marginal tax rate:** 25%
- **Long-term debt coupon rate:** 10%
- **Market risk premium:** 5.2%
- **Risk-free rate:** 5.5%
- **Sunrise’s beta:** 1.526
- **Total debt (short-term + long-term):** $1.2 million
#### Task
Determine the firm’s Weighted Average Cost of Capital (WACC) given the following assumptions:
- **Current market-value capital structure is used.**
- **Equity source is only retained earnings.**
- Use the average of calculated equity costs via Discounted Cash Flow (DCF) and Capital Asset Pricing Model (CAPM) methods.
This comprehensive financial outline will assist in conducting further analysis and computations relevant to corporate finance studies.
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