Current assets Net Fixed assets Total assets Accounts payable and accurals. Short term debt Long term debt Preferred Stock (10,000 shares) Common Stock (50,000 shares) Retained earnings Total common equity Total liabilities and equity $2,000 3,000 $5,000 $900 100 1,100 250 1,300 1,350 $2,650 $5,000 Sunrise's earnings per share last year were $3.20. The common stock sells for $52.00, last year's dividend (D.)was $2.25, and a flotation cost of 10% would be required to sell new common stock. Security analysts are projecting that the common dividend will grow at an annual rate of 8.8%. Sunrise's preferred stock pays a dividend of $2.90 per share, and its preferred stock sells for $25.00 per share. The firm's before-tax cost of debt is 12%, and its marginal tax rate is 25%. The firm's currently outstanding 10% annual coupon rate, long-term debt sells at par value. The market risk premium is 5.2%, the risk- free rate is 5.5%, and Sunrise's beta is 1.526. The firm's total debt, which is the sum of the company's short-term debt and long-term debt, equals $1.2 million. Use this data to answer the questions in the assignment. If Sunrise continues to use the same market-value capital structure, what is the firm's WACC assuming that (a) it uses only retained earnings for equity (fer cost of equity use the average of your calculated costs via DCF and CAPM)
Current assets Net Fixed assets Total assets Accounts payable and accurals. Short term debt Long term debt Preferred Stock (10,000 shares) Common Stock (50,000 shares) Retained earnings Total common equity Total liabilities and equity $2,000 3,000 $5,000 $900 100 1,100 250 1,300 1,350 $2,650 $5,000 Sunrise's earnings per share last year were $3.20. The common stock sells for $52.00, last year's dividend (D.)was $2.25, and a flotation cost of 10% would be required to sell new common stock. Security analysts are projecting that the common dividend will grow at an annual rate of 8.8%. Sunrise's preferred stock pays a dividend of $2.90 per share, and its preferred stock sells for $25.00 per share. The firm's before-tax cost of debt is 12%, and its marginal tax rate is 25%. The firm's currently outstanding 10% annual coupon rate, long-term debt sells at par value. The market risk premium is 5.2%, the risk- free rate is 5.5%, and Sunrise's beta is 1.526. The firm's total debt, which is the sum of the company's short-term debt and long-term debt, equals $1.2 million. Use this data to answer the questions in the assignment. If Sunrise continues to use the same market-value capital structure, what is the firm's WACC assuming that (a) it uses only retained earnings for equity (fer cost of equity use the average of your calculated costs via DCF and CAPM)
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
Related questions
Question
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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