Your company had these balances on its balance sheet at the end of the last fiscal year: $65,000,000 15,000,000 40,000,000 15,000,000 37,500,000 Long-term debt Preferred stock Common stock Paid in excess Retained earnings The company's long-term debt is comprised of 20-year $1000 face value bonds issued 7 years ago at an 8% coupon rate. The bonds are now selling to yield 6%. Willerton's preferred is from a single issue of $100 par value, 9% preferred stock that is now selling to yield 8%. Willerton has 4 million shares of common stock outstanding at a current market price of $31. Assume the firm's cost of retained earnings is 17% and its marginal tax rate is 36%. Assume that the coupon payments are semi-annual. Calculate its WACC using its book-value-based capital structure ignoring flotation costs. Round the answer to two decimal places. Do not round your intermediate calculations. Do not include the "%". Make the same calculation using the market-value-based capital structure. Round the answer to two decimal places. Do not round your intermediate calculations. Do not include the "%". Hint: These two WACCs should be similar.

Your company had these balances on its balance sheet at the end of the last fiscal year: $65,000,000 15,000,000 40,000,000 15,000,000 37,500,000 Long-term debt Preferred stock Common stock Paid in excess Retained earnings The company's long-term debt is comprised of 20-year $1000 face value bonds issued 7 years ago at an 8% coupon rate. The bonds are now selling to yield 6%. Willerton's preferred is from a single issue of $100 par value, 9% preferred stock that is now selling to yield 8%. Willerton has 4 million shares of common stock outstanding at a current market price of $31. Assume the firm's cost of retained earnings is 17% and its marginal tax rate is 36%. Assume that the coupon payments are semi-annual. Calculate its WACC using its book-value-based capital structure ignoring flotation costs. Round the answer to two decimal places. Do not round your intermediate calculations. Do not include the "%". Make the same calculation using the market-value-based capital structure. Round the answer to two decimal places. Do not round your intermediate calculations. Do not include the "%". Hint: These two WACCs should be similar.

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter13: Long-term Liabilities

Section: Chapter Questions

Problem 19MC: Gingko Inc. issued bonds with a face value of $100,000, a rate of 7%, and a 10-yearterm for...

See similar textbooks

Similar questions

Company A's balance sheet as of today is as follows: Long-term debt (bonds, at par) Preferred stock Common stock ($10 par) Retained earnings Total debt and equity $10,000,000 2,000,000 10,000,000 4,000,000 $26,000,000 The bonds have a 4.0% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 10 years from today. The yield to maturity is 12%, so the bonds now sell below par. What is the current market value of the firm's debt? a. $5,412,032 b. $5,479,822 c. $5,751,032 d. $5,549,671 e. $5,249,841
CMS Corporation's balance sheet as of today is as follows: Long-term debt (bonds, at par) Preferred stock Common stock ($10 par) Retained earnings Total debt and equity $10,000,000 2.000.000 10,000,000 4.000.000 $26.000,000 The bonds have a 6.6% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 10 years from today. The yield to maturity is 12%, so the bonds now sell below par. What is the current market value of the firm's debt? Select the correct answer. Oa. $6,900,480 Ob.$6,901,361 Oc$6,899,600 d. $6,903,121 Oe. $6,902,241
The Imhoff Company's balance sheet shows the following labilities and net worth: 10,000 bonds (Issued at par value of $1,000 each, 6% seml-annual coupon, 10 years maturity remaining, and a current market price of $950) 1,000,000 shares of common stock outstanding Issued at $10 each. This past year's free cash flow (FCFO) was $1,000,000. For the next 2 years, free cash flows (FCF1, FCF2) are expected to grow by 20% per year, after which FF's will Increase at a constant rate of 5% per year. The company's WACC is estimated to be 9%. Finally, Imhoff has $1,000,000 invested in marketable securitles. This Investment is set aside for possible future acquisitions and is therefore not part of the company's day-to-day operations. Based on the above information, please answer the following questions: 1. What is the "terminal value" (or "horizon value") of Imhoff's free cash flows (FF's) from Year 3 onwards? 2. What is Imhoff's "value of operations" (or "enterprise value")? 3. What is Imhoff's…
CMS Corporation's balance sheet as of today is as follows: Long-term debt (bonds, at par) $10,000,000 Preferred stock 2,000,000 Common stock ($10 par) 10,000,000 Retained earnings 4,000,000 Total debt and equity $26,000,000 The bonds have a 7.5% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 10 years from today. The yield to maturity is 12%, so the bonds now sell below par. What is the current market value of the firm's debt?
Subject : Accounting Six years ago, the Silver Spar Company sold $50,000 par value, noncallable bonds that now have 14 yearsyears to maturity. The bonds have a 4.40% annual coupon rate that is paid quarterly. The bonds currently sell for $48,980 and the company's tax rate is 38%. What is the component cost of debt for use in the WACC calculation? Do not round your intermediate calculations.
Suppose Westerfield Co. has the following financial information: Debt: 900, 000 bonds outstanding with a face value of $1,000. The bonds currently trade at 85% of par and have 12 years to maturity. The coupon rate equals 7%, and the bonds make semiannual interest payments. Preferred stock: 600,000 shares of preferred stock outstanding; currently trading for $108 per share, paying a dividend of $9 annually. Common stock: 25,000,000 shares of common stock outstanding; currently trading for $185 per share. Beta equals 1.22. Market and firm information: The expected return on the market is 9%, the risk - free rate is 5%, and the tax rate is 21 %. Calculate the weight of debt in the capital structure. (Enter percentages as decimals and round to 4 decimals)
Suppose Westerfield Co. has the following financial information: Debt: 900,000 bonds outstanding with a face value of $1,000. The bonds currently trade at 85% of par and have 12 years to maturity. The coupon rate equals 7%, and the bonds make semiannual interest payments. Preferred stock: 600,000 shares of preferred stock outstanding; currently trading for $108 per share, paying a dividend of $9 annually. Common stock: 25,000,000 shares of common stock outstanding; currently trading for $185 per share. Beta equals 1.22. Market and firm information: The expected return on the market is 9%, the risk-free rate is 5%, and the tax rate is 21%. Calculate the weight of the common stock in the capital structure. (Enter percentages as decimals and round to 4 decimals)
Suppose Westerfield Co. has the following financial information: Debt: 900,000 bonds outstanding with a face value of $1,000. The bonds currently trade at 85% of par and have 12 years to maturity. The coupon rate equals 7%, and the bonds make semiannual interest payments. Preferred stock: 600,000 shares of preferred stock outstanding; currently trading for $108 per share, paying a dividend of $9 annually. Common stock: 25,000,000 shares of common stock outstanding; currently trading for $185 per share. Beta equals 1.22. Market and firm information: The expected return on the market is 9%, the risk-free rate is 5%, and the tax rate is 21%. Calculate the cost of preferred stock. (Enter percentages as decimals and round to 4 decimals)
Sapp Trucking's balance sheet shows a total of noncallable $50 million long-term debt with a coupon rate of 7.00% and a yield to maturity of 6.00%. This debt currently has a market value of $65 million. The balance sheet also shows that the company has 10 million shares of common stock, and the book value of the common equity (common stock plus retained earnings) is $95 million. The current stock price is $26.50 per share; stockholders' required return, rs. is 14.00%; and the firm's tax rate is 25%. The CFO thinks the WACC should be based on market value weights, but the president thinks book weights are more appropriate. What is the difference between hese two WACCs? Ⓒa. 0,67% Ob. 1.40% Oc1.18% Od. 1.04% e: 0.89%
Gingko Inc. issued bonds with a face value of $100,000, a rate of 7%, and a 10-yearterm for $103,000. From this information, we know that the market rate of interest was ________. A. more than 7% B. less than 7% C. equal to 7% D. equal to 1.3%
Sapp Trucking’s balance sheet shows a total of noncallable $45 million long-term debt with a coupon rate of 7.00% and a yield to maturity of 6.00%. This debt currently has a market value of $50 million. The balance sheet also shows that the company has 10 million shares of common stock, and the book value of the common equity (common stock plus retained earnings) is $65 million. The current stock price is $28.50 per share; stockholders' required return, rs, is 14.00%; and the firm's tax rate is 40%. The CFO thinks the WACC should be based on market value weights, but the president thinks book weights are more appropriate. What is the difference between these two WACCs? Group of answer choices 2.57% 2.03% 2.70% 3.11% 3.38%
Selected financial data from the September 30 year-end statements of Green Company are given below: Interest expense on long-term debt P95,000.00 Profit P480,000.00 Total Assets P5,100,000.00 12% interest bearing long term debt* P760,000.00 7% Preference shares, P100 par P900,000.00 Total Stockholders' equity P3,200,000.00 *This is the only interest bearing liability Green Company has. The Company's tax rate is 25%. Total assets at the beginning of the year was P4,800,000 and total stockholders' equity was P2,900,000. There has been no change on the preference shares during the year. Required: A. Compute the return on average total assets. B. Compute the return on average ordinary shareholders' equity.