a
Adequate information:
Bonds outstanding
Common stock outstanding
Beta of the stock
Current price per share
Coupon rate of Bond
Face
Selling rate of Bond
Price of Bond
Term duration of Bond
Number of compounding periods in a year
Risk-free rate
Market risk premium
Tax rate
To compute: Market value capital structure for the company M.
Introduction: The market value refers to the value that reflects the current market projections in the valuation.
b
Adequate information:
Bonds outstanding
Common stock outstanding
Beta of the stock
Current price per share
Coupon rate of Bond
Face value of Bond
Selling rate of Bond
Price of Bond
Term duration of Bond
Number of compounding periods in a year
Risk-free rate
Market risk premium
Tax rate
To compute: WACC
Introduction: Weighted average cost of capital (WACC) refers to the cost of capital from various sources such as common stocks, preferred stocks, bonds, etc.
Want to see the full answer?
Check out a sample textbook solutionChapter 13 Solutions
CORPORATE FINANCE--CONNECT ACCESS CARD
- BC Mining Coloration has 9.3 million shares of common stock outstanding and 127,000 semi-annual bonds outstanding with a face value of $1.000 and a 6 5% coupon rate. The common stock currently sells for $342 per share and has a beta of 1.18, and the bonds have 13 years to maturity and sell for 108% of face value. The market risk premium is 6.9%, T-bills (risk-free) yield 5%, and the company's tax rate is 0% ) What is the fir's market value capital structure? b) Estimate the firm's cost of equity, and after tax cost of debt. (c) Estimate the company's total cost of capital.arrow_forward• The company has 81,000 bonds with a 30-year life outstanding, with 15 years untilmaturity. The bonds carry a 10 percent semi-annual coupon, and are currently sellingfor $899.24.• The company also has 150,000 shares of $100 par, 9% dividend perpetual preferredstock outstanding. The current market price is $90.00. Any new issues of preferredstock would incur a 3.6% per share flotation cost.• The company has 5 million shares of common stock outstanding with a current priceof $29.84 per share. The stock exhibits a constant growth rate of 10 percent. The lastdividend (D0) was $.80. New stock could be sold with flotation costs of 6.7% pershare.• The risk-free rate is currently 6 percent, and the rate of return on the stock market as awhole is 13 percent. Your stock’s beta is 1.18.• Your firm does not use notes payable for long-term financing.• Your firm’s federal + state marginal tax rate is 28%.• For all projects, the reinvestment rate shall be 9.5%…arrow_forwardThe equity beta of Fence Co is 0·9 and the company has issued 10 million ordinary shares. The market value of each ordinary share is $7·50. The company is also financed by 7% bonds with a nominal value of $100 per bond, which will be redeemed in seven years’ time at nominal value. The bonds have a total nominal value of $14 million. Interest on the bonds has just been paid and the current market value of each bond is $107·14.Fence Co plans to invest in a project which is different to its existing business operations and has identified a company in the same business area as the project, Hex Co. The equity beta of Hex Co is 1·2 and the company has an equity market value of $54 million. The market value of the debt of Hex Co is $12 million. The risk-free rate of return is 4% per year and the average return on the stock market is 11% per year. Both companies pay corporation tax at a rate of 20% per year. Required: (a) Calculate the current weighted average cost of capital of Fence Co.…arrow_forward
- The Nile Corporation has 9.9 million shares of common stock outstanding and 430,000 6 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $47 per share and has a beta of 1.45. The bonds have 20 years to maturity and sell for 118 percent of par. The market risk premium is 8.7 percent, T-bills are yielding 5 percent, and the company's tax 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 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 and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a. Debt Equity b. Discount rate 0.5218 0.4782 6.95 %arrow_forwardGiven the following for Huntington Power Co., find the WACC. Assume the company's tax rate is 21 percent. Debt: 20,000 5.1 percent coupon bonds outstanding, $2000 par value, 20 years to maturity, selling for 105 percent of par, the bonds make semiannual payments. Common stock: 900,000 shares outstanding selling for $77 per share; the beta is 95. Market: 7 percent market risk premium and 3.5 percent risk-free rate.arrow_forwardTitan Mining Corporation has 9 million shares of common stock outstanding and 200,000 bonds outstanding with 8 percent coupon rate, semiannual payments and par value $1,000 each. The common stock currently sells for $30 per share and has a beta of 1.20, and the bonds have 20 years to maturity and sell for 115 percent of par. The market risk premium is 6 percent, T-bills are 2 percent, and the company’s tax rate is 20 percent. If the company is evaluating a new investment project that has higher risk (beta of the project is 1.5) than the firm’s typical project, what rate should the firm use to discount the project’s cash flows?arrow_forward
- Given the following information for Huntington Power Co., find the WACC. Assume the company's tax rate is 35 percent. Debt: 5,000 6 percent coupon bonds outstanding, $1,000 par value, 25 years to maturity, selling for 105 percent of par; the bonds make semiannual payments. Common Stock: 175,000 shares outstanding, selling for $58 per share; the beta is 1.10. Market: 7 percent market risk premium and 5 percent risk - free rate. Solve for WACC in Excelarrow_forwardTitan Corporation has 9.6 million shares of common stock outstanding and 400,000 5.7 percent semiannual bonds outstanding, with a par value of $1,000 each. The common stock currently sells for $44 per share and has a beta of 1.2; the bonds have 20 years to maturity and sell for 115 percent of par. The market risk premium is 8.4 percent, T-bills are yielding 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 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 and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Answer is complete but not entirely correct. 460,000,000.0000 > 422,400,000.0000 > a. Debt a. Equity b. Discount rate 8.66 %arrow_forwardABC Inc. has a the capital structure shown below. Liabilities Stockholders' Equity $122,099,000 $95,228,000 ABC Inc. will raise additional capital for new projects this year, in the amount of $44,978,000. The firm believes, however, that a capital structure with 56.25% debt is ideal. The firm will be able to issue new discount bonds at a price of $909 with a yield-to-maturity of 3%. Assuming they want to change their capital structure to the new target, how many new bonds will the firm need to issue? unur answer to the nearest bond.arrow_forward
- The company has 81,000 bonds with a 30-year life outstanding, with 15 years untilmaturity. The bonds carry a 10 percent semi-annual coupon, and are currently sellingfor $899.24.• The company also has 150,000 shares of $100 par, 9% dividend perpetual preferredstock outstanding. The current market price is $90.00. Any new issues of preferredstock would incur a 3.6% per share flotation cost.• The company has 5 million shares of common stock outstanding with a current priceof $29.84 per share. The stock exhibits a constant growth rate of 10 percent. The lastdividend (D0) was $.80. New stock could be sold with flotation costs of 6.7% pershare.• The risk-free rate is currently 6 percent, and the rate of return on the stock market as awhole is 13 percent. Your stock’s beta is 1.18. • Your firm does not use notes payable for long-term financing.• Your firm’s federal + state marginal tax rate is 28%.• For all projects, the reinvestment rate shall be 9.5%…arrow_forwardThe company has 81,000 bonds with a 30-year life outstanding, with 15 years untilmaturity. The bonds carry a 10 percent semi-annual coupon, and are currently sellingfor $899.24.• The company also has 150,000 shares of $100 par, 9% dividend perpetual preferredstock outstanding. The current market price is $90.00. Any new issues of preferredstock would incur a 3.6% per share flotation cost.• The company has 5 million shares of common stock outstanding with a current priceof $29.84 per share. The stock exhibits a constant growth rate of 10 percent. The lastdividend (D0) was $.80. New stock could be sold with flotation costs of 6.7% pershare.• The risk-free rate is currently 6 percent, and the rate of return on the stock market as awhole is 13 percent. Your stock’s beta is 1.18.• Your firm does not use notes payable for long-term financing.• Your firm’s federal + state marginal tax rate is 28%.• For all projects, the reinvestment rate shall be 9.5%…arrow_forwardS corporation has outstanding shares of 100 million shares. The company equity beta is 1.15. The interest rate on debt is \( 12.3 \% \). The weight of equity and debt is 0.75 and 0.25 respectively. The company wants to maintain its debt-to-market value ratio forever. The yield on 30-year government bond yield is \( 5.65 \% \). The estimated historical market premium is \( 9 \% \). The company is taxed at marginal rate of \( 35 \% \). The current free cash flow amounts to \( \$ 225 \) million. The growth in cash flows is expected to be \( 12 \% \) for 7 years and thereafter, at \( 6 \% \) forever. Calculate the value of equity per share of the company.arrow_forward
- Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
- Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage LearningCorporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author: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 ProfessorPublisher:McGraw-Hill Education