Lebleu, Incorporated, is considering a project that will result in initial aftertax cashsavings of $2.9 million at the end of the first year, and these savings will grow at a rate of2 percent per year indefinitely. The firm has a target debt-equity ratio of .75, a cost ofequity of 10 percent, and an aftertax cost of debt of 4.6 percent. The cost-savingproposal is somewhat riskier than the usual project the firm undertakes; managementuses the subjective approach and applies an adjustment factor of +3 percent to the costof capital for such risky projects.What is the maximum inital cost the company would be willing to pay for the project? (Donot round intermediate calculations and and enter your answer in dollars, not millionsof dollars, rounded to the nearest whole number, e.g., 1,234,567.)Maximum cost Lingenburger Cheese Corporation has 6.4 million shares of common stock outstanding,200,000 shares of 3.8 percent preferred stock outstanding, par value of $100, and120,000 bonds with a semiannual coupon of 4.8 percent outstanding, par value $1,000each. The common stock currently sells for $54 per share and has a beta of 1.08, thepreferred stock currently sells for $103 per share, and the bonds have 15 years tomaturity and sell for 107 percent of par. The market risk premium is 7.5 percent, T-billsare yielding 2.4 percent, and the company's tax rate is 22 percent.a. What is the firm's market value capital structure? (Do not round intermediatecalculations and round your answers to 4 decimal places, e.g., .1616.)b. If the company is evaluating a new investment project that has the same risk as thefirm's typical project, what rate should the firm use to discount the project's cashflows? (Do not round intermediate calculations and enter your answer as a percentrounded to 2 decimal places, e.g., 32.16.)a. Debta. Equitya. Preferred stockb. Discount rate%

Lebleu, Incorporated, is considering a project that will result in initial aftertax cash savings of $2.9 million at the end of the first year, and these savings will grow at a rate of 2 percent per year indefinitely. The firm has a target debt-equity ratio of .75, a cost of equity of 10 percent, and an aftertax cost of debt of 4.6 percent. The cost-saving proposal is somewhat riskier than the usual project the firm undertakes; management uses the subjective approach and applies an adjustment factor of +3 percent to the cost of capital for such risky projects. What is the maximum inital cost the company would be willing to pay for the project? (Do not round intermediate calculations and and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) Maximum cost

Lebleu, Incorporated, is considering a project that will result in initial aftertax cash savings of $2.9 million at the end of the first year, and these savings will grow at a rate of 2 percent per year indefinitely. The firm has a target debt-equity ratio of .75, a cost of equity of 10 percent, and an aftertax cost of debt of 4.6 percent. The cost-saving proposal is somewhat riskier than the usual project the firm undertakes; management uses the subjective approach and applies an adjustment factor of +3 percent to the cost of capital for such risky projects. What is the maximum inital cost the company would be willing to pay for the project? (Do not round intermediate calculations and and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) Maximum cost

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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Lingenburger Cheese Corporation has 7.7 million shares of common stock outstanding, 285,000 shares of 4.4 percent preferred stock outstanding, and 170,000 bonds with a semiannual coupon rate of 6.1 percent outstanding, par value $2,000 each. The common stock currently sells for $60 per share and has a beta of 1.20, the preferred stock has a par value of $100 and currently sells for $96 per share, and the bonds have 15 years to maturity and sell for 104 percent of par. The market risk premium is 6.9 percent, T-bills are yielding 3.6 percent, and the company’s tax rate is 21 percent. a. What is the firm’s market value capital structure? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.) b. If the company is evaluating a new investment project that has the same risk as the firm’s typical project, what rate should the firm use to discount the project’s cash flows? (Do not round intermediate…
Lingenburger Cheese Corporation has 8.3 million shares of common stock outstanding, 305,000 shares of 3.9 percent preferred stock outstanding, and 190,000 bonds with a semiannual coupon rate of 5.2 percent outstanding, par value $2,000 each. The common stock currently sells for $56 per share and has a beta of 1.20, the preferred stock has a par value of $100 and currently sells for $100 per share, and the bonds have 19 years to maturity and sell for 108 percent of par. The market risk premium is 6.8 percent, T-bills are yielding 3.2 percent, and the company’s tax rate is 25 percent. a. What is the firm’s market value capital structure? (Do not round intermediate calculations and
Lingenburger Cheese Corporation has 8.3 million shares of common stock outstanding, 305,000 shares of 3.9 percent preferred stock outstanding, and 190,000 bonds with a semiannual coupon rate of 5.2 percent outstanding, par value $2,000 each. The common stock currently sells for $56 per share and has a beta of 1.20, the preferred stock has a par value of $100 and currently sells for $100 per share, and the bonds have 19 years to maturity and sell for 108 percent of par. The market risk premium is 6.8 percent, T-bills are yielding 3.2 percent, and the company's tax rate is 25 percent. a. What is the firm's market value capital structure? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.) b. If the company is evaluating a new investment project that has the same risk as the firm's typical project, what rate should the firm use to discount the project's cash flows? (Do not round intermediate calculations enter your answer as a percent rounded…
Lingenburger Cheese Corporation has 6.6 million shares of common stock outstanding, 235,000 shares of 3.9 percent preferred stock outstanding, and 120,000 bonds with a semiannual coupon rate of 5.6 percent outstanding, par value $1,000 each. The common stock currently sells for $70 per share and has a beta of 1.10, the preferred stock has a par value of $100 and currently sells for $86 per share, and the bonds have 15 years to maturity and sell for 104 percent of par. The market risk premium is 7.4 percent, T-bills are ylelding 3.4 percent, and the company's tax rate is 21 percent. a. What is the firm's market value capital structure? (Do not round Intermediate calculations and round your answers to 4 declmal places, e.g., 1616.) b. If the company is evaluating a new Investment project that has the same risk as the firm's typical project, what rate should the firm use to discount the project's cash flows? (Do not round Intermedlate calculatlons enter your answer as a percent rounded to…
Lingenburger Cheese Corporation has 7.3 million shares of common stock outstanding, 265,000 shares of 4.5 percent preferred stock outstanding, par value of $100; and 150,000 bonds with a semiannual coupon rate of 5.4 percent outstanding, par value $2,000 each. The common stock currently sells for $64 per share and has a beta of 1.20, the preferred stock has a par value of $100 and currently sells for $92 per share, and the bonds have 16 years to maturity and sell for 106 percent of par. The market risk premium is 7.4 percent, T-bills are yielding 3.2 percent, and the company's tax rate is 22 percent. a. What is the firm's market value capital structure? Note: Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616. b. If the company is evaluating a new investment project that has the same risk as the firm's typical project, what rate should the firm use to discount the project's cash flows? Note: Do not round intermediate calculations enter your…
Lingenburger Cheese Corporation has 7.3 million shares of common stock outstanding, 265,000 shares of 4.5 percent preferred stock outstanding, par value of $100; and 150,000 bonds with a semiannual coupon rate of 5.4 percent outstanding, par value $2,000 each. The common stock currently sells for $64 per share and has a beta of 1.20, the preferred stock has a par value of $100 and currently sells for $92 per share, and the bonds have 16 years to maturity and sell for 106 percent of par. The market risk premium is 7.4 percent, T-bills are yielding 3.2 percent, and the company's tax rate is 22 percent. a. What is the firm's market value capital structure? Note: Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616. b. If the company is evaluating a new investment project that has the same risk as the firm's typical project, what rate should the firm use to discount the project's cash flows? Note: Do not round intermediate calculations enter your…
Lingenburger Cheese Corporation has 6.2 million shares of common stock outstanding, 215,000 shares of 3.5 percent preferred stock outstanding, par value of $100; and 100,000 bonds with a semiannual coupon rate of 5.2 percent outstanding, par value $1,000 each. The common stock currently sells for $74 per share and has a beta of 1.10, the preferred stock has a par value of $100 and currently sells for $82 per share, and the bonds have 16 years to maturity and sell for 106 percent of par. The market risk premium is 6.9 percent, T-bills are yielding 2.9 percent, and the company's tax rate is 22 percent. a. What is the firm's market value capital structure? Note: Do not round intermediate calculations and round your answers to 4 decimal places, e.g...1616. b. If the company is evaluating a new investment project that has the same risk as the firm's typical project, what rate should the firm use to discount the project's cash flows? Note: Do not round intermediate calculations enter your…
Hankins Corp has 5.4 million shares of common stock outstanding; 290,000 shares of 5.2% preferred stock outstanding, with a par value of $100; and 125,000, 5.7 semiannual bonds outstanding with a par value 1000 each. The common stock currently sells for $72 per share and has a beta of 1.13, The preferred stock currently sells for $103 per share, and the bonds have a 20 year to maturity and self worth. 103 percent of par. The market risk premium is 6.8%, T-bills are yielding 4.3%, and the firm's tax rate is 23%. A.What is the firm's market capital structure? B. If the firm is evaluating a new investment project that has the same risk, as the firm's typical project, what rate should the firm used to discount the project's cash flow? pls type in computer. Thanks!
Lingenburger Cheese Corporation has 6.1 million shares of common stock outstanding, 210,000 shares of 3.4 percent preferred stock outstanding, par value of $100; and 95,000 bonds with a semiannual coupon rate of 5.1 percent outstanding, par value $1,000 each. The common stock currently sells for $75 per share and has a beta of 1.05, the preferred stock has a par value of $100 and currently sells for $81 per share, and the bonds have 15 years to maturity and sell for 105 percent of par. The market risk premium is 6.8 percent, T-bills are yielding 2.8 percent, and the company's tax rate is 21 percent. a. What are the firm's market value capital structure weights? Note: Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616. b. If the company is evaluating a new investment project that has the same risk as the firm's typical project, what rate should the firm use to discount the project's cash flows? Note: Do not round intermediate calculations…
es Lingenburger Cheese Corporation has 6.6 million shares of common stock outstanding, 235,000 shares of 3.9 percent preferred stock outstanding, par value of $100; and 120,000 bonds with a semiannual coupon rate of 5.6 percent outstanding, par value $1,000 each. The common stock currently sells for $70 per share and has a beta of 1.10, the preferred stock has a par value of $100 and currently sells for $86 per share, and the bonds have 15 years to maturity and sell for 104 percent of par. The market risk premium is 7.4 percent, T-bills are yielding 3.4 percent, and the company's tax rate is 21 percent. a. What are the firm's market value capital structure weights? Note: Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616. b. If the company is evaluating a new investment project that has the same risk as the firm's typical project, what rate should the firm use to discount the project's cash flows? Note: Do not round intermediate calculations…
Titan Mining Corporation has 6.3 million shares of common stock outstanding, 220,000 shares of 3.6 percent preferred stock outstanding, and 105,000 bonds with a semiannual coupon rate of 5.3 percent outstanding, par value $1,000 each. The common stock currently sells for $73 per share and has a beta of 1.15, the preferred stock has a par value of $100 and currently sells for $83 per share, and the bonds have 17 years to maturity and sell for 107 percent of par. The market risk premium is 7.1 percent, T-bills are yielding 3.1 percent, and the company’s tax rate is 23 percent. a. What is the firm’s market value capital structure? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.) b. If the company is evaluating a new investment project that has the same risk as the firm’s typical project, what rate should the firm use to discount the project’s cash flows? (Do not round intermediate calculations enter your answer as a percent…
Titan Mining Corporation has 7.6 million shares of common stock outstanding, 280,000 shares of 4.5 percent preferred stock outstanding, and 165,000 bonds with a semiannual coupon rate of 5.9 percent outstanding, par value $2,000 each. The common stock currently sells for $61 per share and has a beta of 1.15, the preferred stock has a par value of $100 and currently sells for $95 per share, and the bonds have 19 years to maturity and sell for 109 percent of par. The market risk premium is 7.1 percent, T-bills are yielding 3.5 percent, and the company’s tax rate is 25 percent. a. What is the firm’s debt, preferred stock and equity? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.) b. If the company is evaluating a new investment project that has the same risk as the firm’s typical project, what rate should the firm use to discount the project’s cash flows? (Do not round intermediate calculations enter your answer as a percent…

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