The market value of MCO's equity, preferred stock and debt are $7 million, $2 million, and $13 million, respectively.MCO's equity has a beta of 1.9, the market risk premium is 7%, and the risk - free rate of interest is 3%. MCO'spreferred stock pays a dividend of $2.5 each year and trades at a price of $27 per share. MCO's debt trades with a yieldto maturity of 8.5%. What is MCO's after-tax weighted average cost of capital (WACC) if its tax rate is 25%?The WACC is closest to:A. 11.76%B. 11.05%C. 9.8%D. 7.98%E. 10.43%

Cost of Equity is calculated by Capital Asset Pricing Model.W is for weight of each component of…

Answered: The market value of MCO's equity,…

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

See similar textbooks

Similar questions

Examine the following book-value balance sheet for University Products Incorporated. The preferred stock currently sells for $15 per share and pays a dividend of $3 a share. The common stock sells for $16 per share and has a beta of 0.9. There are 2 million common shares outstanding. The market risk premium is 9%, the risk-free rate is 5%, and the firm's tax rate is 21%. Assets Cash and short-term securities Accounts receivable Inventories Plant and equipment. Total $2.0 3.0 7.0 21.0 $ 33.0 a. Market debt-to-value ratio b. WACC BOOK VALUE BALANCE SHEET (Figures in $ millions) Liabilities and Net Worth Bonds, coupon = 6%, paid annually (maturity = 10 years, current. yield to maturity = 8%) Preferred stock (par value $15 per share) Common stock (par value $0.20) Additional paid-in stockholders' equity Retained earnings Total a. What is the market debt-to-value ratio of the firm? b. What is University's WACC? Note: For all the requirements, do not round intermediate calculations. Enter…
Reiterpallasch Inc. has provided you the following data: the company expects to pay a dividend of $0.65 at the end of the year, and the dividend is expected to grow at a constant rate of 6.00% per year, the current price of a share of stock is $16.00 per share, and the flotation cost for issuing new shares is 10.00%. The yield on the company's outstanding bonds is 7.75%, and the tax rate is 25%. The target capital structure consists of 40% debt, with the remainder consisting of common equity. Assuming the company MUST issue new stock to finance its capital budget, what is the company's WACC?
Examine the following book-value balance sheet for University Products Incorporated. The preferred stock currently sells for $15 per share and pays a dividend of $3 a share. The common stock sells for $20 per share and has a beta of 0.7. There are 2 million common shares outstanding. The market risk premium is 12%, the risk-free rate is 8%, and the firm's tax rate is 21%. BOOK-VALUE BALANCE SHEET Liabilities and Net Worth (Figures in s millions). Assets Cash and short-term securities $ 1.0 Bonds, coupon = 6%, paid annually (maturity = 10 years, current yield to maturity = 8%) $ 10.0 Accounts receivable 4.0 Preferred stock (par value $20 per share) 3.0 Inventories Plant and equipment 8.0 24.0 Common stock (par value $0.10) 0.2 Additional paid-in stockholders' equity Retained earnings 10.8 13.0 Total $ 37.0 Total $ 37.0 a. What is the market debt-to-value ratio of the firm? b. What is University's WACC? Note: For all the requirements, do not round intermediate calculations. Enter your…
Hoover Enterprises stock trades for $52.50 per share. It is expected to pay a $2.50 dividend at year end (D1= $2.50), and the dividend is expected to grow at a constant rate of 5.50% a year. The before-tax cost of debt is 7.50%, and the tax rate is 40%. The target capital structure consists of 45% debt and 55% common equity. What is the company's WACC if all the equity used is from reinvested earnings? Show work in excel.
McCann Catching, Inc. has 3.00 million shares of stock outstanding. The stock currently sells for $12.79 per share. The firm's debt is publicly traded and was recently quoted at 89.00% of face value. It has a total face value of $19.00 million, and it is currently priced to yield 10.00%. The risk free rate is 3.00% and the market risk premium is 8.00%. You've estimated that the firm has a beta of 1.20. The corporate tax rate is 34.00%. The firm is considering a $45.89 million expansion of their production facility. The project has the same risk as the firm overall and will earn $11.00 million per year for 7.00 years. What is the NPV of the expansion? (answer in terms of millions, so 1,000,000 would be 1.0000)
An analyst has collected the following information regarding Christopher Co.: · The company's capital structure is 70 percent equity, 30 percent debt. · The yield to maturity on the company's bonds is 7 percent. · The company's year-end dividend (D1) is forecasted to be $0.9 a share. · The company expects that its dividend will grow at a constant rate of 7 percent a year. · The company's stock price is $25. · The company's tax rate is 40 percent. · The company anticipates that it will need to raise new common stock this year. Its investment bankers anticipate that the total flotation cost will equal 10 percent of the amount issued. Assume the company accounts for flotation costs by adjusting the cost of capital. Given this information, calculate the company's cost of new equity. Round it to two decimal places
Examine the following book - value balance sheet for University Products Incorporated. The preferred stock currently sells for $15 per share and pays a dividend of $3 a share. The common stock sells for $20 per share and has a beta of 0.7. There are 2 million common shares outstanding. The market risk premium is 12%, the risk-free rate is 8%, and the firm's tax rate is 21%. BOOK- VALUE BALANCE SHEET (Figures in $ millions) Assets Liabilities and Net Worth Cash and short- term securities $ 2.0 Bonds, coupon = 5%, paid annually (maturity = 10 years, current yield to maturity = 7% ) $ 10.0 Accounts receivable 3.0 Preferred stock (par value $20 per share) 3.0 Inventories 7.0 Common stock (par value $0.10) 0.2 Plant and equipment 25.0 Additional paid - in stockholders' equity 11.8 Retained earnings 12.0 Total $ 37.0 Total $ 37.0 What is the market debt- to-value ratio of the firm? What is University's WACC?
Examine the following book-value balance sheet for University Products Inc. The preferred stock currently sells for $15 per share and pays a dividend of $3 a share. The common stock sells for $16 per share and has a beta of 0.7. There are 1 million common shares outstanding. The market risk premium is 8%, the risk-free rate is 4%, and the firm’s tax rate is 21%. BOOK-VALUE BALANCE SHEET (Figures in $ millions) Assets Liabilities and Net Worth Cash and short-term securities $ 2.0 Bonds, coupon = 6%, paid annually(maturity = 10 years, current yield to maturity = 7%) $ 10.0 Accounts receivable 5.0 Preferred stock (par value $10 per share) 3.0 Inventories 9.0 Common stock (par value $0.10) 0.1 Plant and equipment 22.0 Additional paid-in stockholders’ equity 8.9 Retained earnings 16.0 Total $ 38.0 Total $ 38.0 a. What is the market debt-to-value ratio of the firm? b. What is University’s…
Ma, Inc. has a market value capital structure of 30% debt and 70% equity. The tax rate is 30%. Thefirm’s bonds currently trade in the market for $1035.00. These bonds have a face value of $1,000,coupon rate of 8% paid semiannually, and 10 years remaining to maturity. The firm’s common stocktrades for $20 per share. The firm has just paid a dividend of $2. Future dividends are expected to growat 2% per year. Based on this information, Ma, Inc.’s WACC is _____%. Cream and Crimson has a capital structure of 60% debt and 40% equity. The tax rate is 34%. The firm’sbonds currently trade in the market for $784. These face value $1,000 bonds have a coupon rate of 8%,paid semiannually, with 7 years to maturity. The firm’s common stock trades for $15 per share and thecompany’s beta is 1.28. The risk-free rate (Rf) = 3.2% and the market risk premium (Rm – Rf) = 8.1%.Given this information, Cream and Crimson’s WACC is _____%.
Nacho Libre S.A. has 3,000,000 common shares outstanding that trade for $20.00 per share. The company has also issued one bond with a par value of $60,000,000 that currently trades at 110 percent of par. You observe that the company's required return on stock is 10.00 percent and the (after-tax) yield to maturity on its debt is 2.00 percent. What is the weighted average cost of capital? Write your answer as a percent rounded to two decimals, but don't include % sign. Numeric Response
Examine the following book-value balance sheet for University Products Inc. The preferred stock currently sells for $15 per share and pays a dividend of $3 a share. The common stock sells for $16 per share and has a beta of 0.6. There are 3 million common shares outstanding. The market risk premium is 10%, the risk-free rate is 6%, and the firm’s tax rate is 21%. BOOK-VALUE BALANCE SHEET (Figures in $ millions) Assets Liabilities and Net Worth Cash and short-term securities $ 1.0 Bonds, coupon = 7%, paid annually(maturity = 10 years, current yield to maturity = 8%) $ 10.0 Accounts receivable 5.0 Preferred stock (par value $10 per share) 3.0 Inventories 9.0 Common stock (par value $0.10) 0.3 Plant and equipment 20.0 Additional paid-in stockholders’ equity 11.7 Retained earnings 10.0 Total $ 35.0 Total $ 35.0 a. What is the market debt-to-value ratio of the firm? b. What is University’s…
Examine the following book-value balance sheet for University Products Inc. The preferred stock currently sells for $15 per share and pays a dividend of $3 a share. The common stock sells for $16 per share and has a beta of 0.6. There are 3 million common shares outstanding. The market risk premium is 10%, the risk-free rate is 6%, and the firm's tax rate is 21%. BOOK-VALUE BALANCE SHEET (Figures in $ millions) Assets Liabilities and Net Worth Cash and short-term securities $ 1.0 5.0 Bonds, coupon = 78, paid annually (maturity = 10 years, current yield to maturity = 8%) Preferred stock (par value $10 per share) $10.0 Accounts receivable 3.0 Inventories Common stock (par value $0.10) Additional paid-in stockholders' equity Retained earnings 9.0 0.3 Plant and equipment 20.0 11.7 10.0 $35.0 $35.0 Total Total a. What is the market debt-to-value ratio of the firm? b. What is University's WACC? (For all the requirements, do not round intermediate calculations. Enter your answers as a percent…

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS