Homework 2 Part 2 Welch

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University of Alabama *

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389

Subject

Finance

Date

Apr 3, 2024

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xlsx

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15

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FI 389 Homework 2 Part 2: Instructions This workbook contains the questions pertaining to Bond Valuation and Cost of Capital. Thes will be covered on Exam 2. Put the your name and Crimson email address into the sheet titled "Your Info". Remember t can work in groups but each student must submit their own file with their own work (you m download and complete this workbook on your own). The remaining sheets each contain 1 question, although they have multiple parts. Cells shad orange will be graded and hence should be filled in. Each question is equally weighted and you can receive partial credit. Make sure that you do your calculations in Excel. If you do the calculation by hand or on a calculator and then type answer you will receive 0 points, even if the answer is correct. Ifyou run into diffuculty with the file upload, you can email it to me (cawhaley1@cba.ua.edu Remember that I will NOT accept late homework under ANY circumstance, so get the home turned in early. If you have any questions, please ask, and good luck!
se topics that you must ded in o all of e in the u). ework
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Your Info Last Name First Name Email Student Welch Daniel dbwelch@crimson.ua.edu
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Question 1 Wayne Enterprices Bonds Price $ 823.00 2/15/2010 Par Value $ 1,000.00 2/15/2019 Coupon Rate 7% Payment Frequency 2 Maturity 9 years Required Return 12% Valuation $729.31 9.60% Yield to Maturity 12.00% Macauley Duaration 6.391 Modified Duration 6.030 As an investor, you are considering an investment in the bonds of Wayne Enterprises. The bonds pay inter semiannually, will mature in nine years, and have a coupon rate of 7% with a par value of $1,000. Current are selling for $823. A - If the required return for bonds this risky is 12%, what is the highest price you would be willing to pay? B - What is the yield to maturity for these bonds? C - What is the Macauley Duration for this Bond? What is the Modified Duration? D - Construct a line chart showing the relationship between yield an price for this bond. Use the table to d price at specfic yields. $120.00 $140.00 $160.00 $180.00 Price
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Place Chart Here! 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10 % 11 % 12 % 13 % 14 % 15 % 16 % 17 % 18 % 19 % 20 % $- $20.00 $40.00 $60.00 $80.00 $100.00 $120.00
Yield Price 0% $ 163.00 1% $ 151.52 2% $ 141.00 3% $ 131.35 4% $ 122.49 rest tly the bonds ? determin the
5% $ 114.35 6% $ 106.88 7% $ 100.00 8% $ 93.67 9% $ 87.84 10% $ 82.47 11% $ 77.51 12% $ 72.93 13% $ 68.70 14% $ 64.79 15% $ 61.18 16% $ 57.83 17% $ 54.72 18% $ 51.84 19% $ 49.17 20% $ 46.69
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Question 2 Source Book Value Quantity weight Common Stock $ 700,000.00 4,000 10.37% Preferred Stock $ 1,050,000.00 15,000 15.56% Debt $ 5,000,000.00 5,000 74.07% Bonds Preferred Stoc Current Maturity 7 Dividend Coupon Rate 6% Price Frequency 2 Cost of Preferred Equity Par Value $ 1,000.00 Price $ 750.00 Yield to Maturity 11.26% After-Tax Cost of Debt 7.32% Source Weight Common Stock 10.37% 0.85% Preferred Stock 15.56% 1.11% Debt 74.07% 5.42% Source Weight Common Stock 2.44% 0.20% Preferred Stock 21.34% 1.52% Debt 76.22% 5.58% Debt is represented by bonds issued 5 years ago with an original maturity of 12 years, a coupon interest semiannually. The preferred stock pays a $5 dividend annually and is currently priced a $30 and is expected to pay a dividend of $1.25 next year. It is also expected to increase the divid pays a marginal tax rate of 35%. A - Calculate the book-value weights for each source of capital. B - Calculate the market-value weights for each source of capital. TMNT Consulting Services has the following capital structure: A - Calculate the book-value weights for each source of capital. B - Calculate the market-value weights for each source of capital.
Source Cost Common Stock 8.17% Preferred Stock 7.14% Debt 7.32% Method WACC Book Value 7.38% Market Value 7.30% D - Calculate the weighted average cost of capital using both the book value and market value w C - Calculate the component costs of capital for each source of capital. D - Calculate the weighted average cost of capital using both the book value and market value w C - Calculate the component costs of capital for each source of capital.
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price mkt valu 30 120,000 70 1,050,000 750 3,750,000 4,920,000 ck Common Stock $ 5.00 Dividend $ 1.25 $ 70.00 Growth Rate 4% 7.14% Price $ 30.00 Cost of Common Stock 8.17% n rate of 6%, and a current price of $750. The bonds pay at $70 per share. The common stock is currently priced at dend by 4% a year from here on out. Assume that TMNT
weights. weights.
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