Bhupatbhai Lingenburger Cheese Corporation has 7.2 million shares of common stock outstanding,260,000 shares of 4.4 percent preferred stock outstanding, and 145,000 bonds with asemiannual coupon rate of 5.5 percent outstanding, par value $2,000 each. Thecommon stock currently sells for $65 per share and has a beta of 1.15, the preferredstock has a par value of $100 and currently sells for $91 per share, and the bonds have15 years to maturity and sell for 105 percent of par. The market risk premium is 7.5percent, T-bills are yielding 3.1 percent, and the company's tax rate is 21 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 enter your answer as a percentrounded to 2 decimal places, e.g., 32.16.)a. Debta. Preferred stocka. Equityb. Discount rate%

a. Market Value Capital Structure:1. Market Value of Each Component:Equity: We multiply the number…

Answered: Lingenburger Cheese Corporation has 7.2…

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 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…
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Lingenburger Cheese Corporation has 6.4 million shares of common stock outstanding, 225.000 shares of 3.7 percent preferred stock outstanding, par velue of $100, and 110 000 bonds with a semiannual coupon rate of 5.4 percent outstanding, par value $1,000 eech. The common stock currently sells for $72 per share and has e beta of 1.20, the areferred stock has a per value of $100 and currently sells for $84 per share, and the bonds have 18 yeers to maturity and sell for 108 percent of per. The market risk premiam is 7.2 percent, Tolls are yielung 32 percent, end the company's tex rate is 24 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 evelueting 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 answer…
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