1. Sudbury Mining Corporation has 3 million shares of common stocks outstanding, 750,000 shares of preferred shares outstanding with a notional dividend yield of 7%, and 85,000 semiannual coupon bonds outstanding with a coupon rate of 7% and face value of $1000 each. The common stock currently sells for $40 per share and has a beta of 1.25, the preferred share currently sells for $90 per share with a face value of $100 each, and the bonds have years to maturity and sells for 8% of Yield to Maturity. The market risk premium is 7.5%, T-bills are yielding 5%, and the company's tax rate is a. What is the bond price? b. What is the firm value? C. What is the WACC for this company?

1. Sudbury Mining Corporation has 3 million shares of common stocks outstanding, 750,000 shares of preferred shares outstanding with a notional dividend yield of 7%, and 85,000 semiannual coupon bonds outstanding with a coupon rate of 7% and face value of $1000 each. The common stock currently sells for $40 per share and has a beta of 1.25, the preferred share currently sells for $90 per share with a face value of $100 each, and the bonds have years to maturity and sells for 8% of Yield to Maturity. The market risk premium is 7.5%, T-bills are yielding 5%, and the company's tax rate is a. What is the bond price? b. What is the firm value? C. What is the WACC for this company?

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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A firm has 1 million shares outstanding with a book value per share of $10 per share. The stock sells for a price of $20 per share. The firm’s bonds have a par value of $8 million and are currently selling at a price of 120 percent of par. What is the appropriate proportion of equity to use in the WACC calculation? 71.4 percent 51.0 percent 55.6 percent 48.0 percent 67.6 percent
S 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 $10 per share and has a beta of 0.9. There are 4 million common shares outstanding. The market risk premium is 8%, the risk-free rate is 4%, and the firm's tax rate is 21%. Assets Cash and short-term securities $ 3.0 Accounts receivable. 3.0 Inventories Plant and equipment Total 7.0 25.0 $ 38.0 a. Market debt-to-value ratio b. WACC BOOK-VALUE BALANCE SHEET (Figures in 5 millions) Liabilities and Net Worth Bonds, coupon 5%, paid annually (maturity 10 years, current yield to maturity = 7%) Preferred stock (par value $20 per share) Common stock (par value $0.10) 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 your…
Using the following information calculate the WACC of Aqua Ltd. The company has 0.3 million shares outstanding at a price of $92 per share. The beta of common stock of is 1.2. The risk-free rate is 5% and the market risk premium is 7%. • The company issued 11% preference shares with a total value of $ 25 million. The company issued 9% bonds of $33.6 million. The company pays corporate tax at 40 percent. A. 9.59% B. 9.89% C. 10.99% D. d.8.35%
Today's Technology has 24,500 shares of common stock outstanding at a price per share of $64 and a rate of return of 13.75 percent. The firm has 6,550 shares of 6.30 percent preferred stock outstanding at a price of $87.50 per share. The preferred stock has a par value of $100. The outstanding debt has a total face value of $359,000 and currently sells for 103.5 percent of face. The yield to maturity on the debt is 7.63 percent. What is the firm's weighted average cost of capital if the tax rate is 35 percent?
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…
2. Consider Higgins Production which has the following information about its capital structures: Debt - 1,500, 5 percent coupon bonds outstanding, $1,000 par value, 7 years to maturity, selling for 80 percent of par, the bonds make semi-annual payments  Common Stock - 100,000 shares outstanding, selling for $45 per share; the beta is 0.80  Preferred Stock - 25,000 shares of 6 percent preferred stock outstanding, currently selling for $150 per share  Market Information - 6 percent market risk premium and 4 percent risk-free rate. Required: Calculate the following if the company has a tax rate of 36 percent.i. Total Market Value for the Firmii. After-tax cost of Debtiii. Cost of Equity PLEASE SHOW WORKINGS CLEARLY
2. Consider Higgins Production which has the following information about its capital structures: Debt - 1,500, 5 percent coupon bonds outstanding, $1,000 par value, 7 years to maturity, selling for 80 percent of par, the bonds make semi-annual payments  Common Stock - 100,000 shares outstanding, selling for $45 per share; the beta is 0.80  Preferred Stock - 25,000 shares of 6 percent preferred stock outstanding, currently selling for $150 per share  Market Information - 6 percent market risk premium and 4 percent risk-free rate. Required: Calculate the following if the company has a tax rate of 36 percent. iii. Cost of Equityiv. Cost of Preferred Stockv. Weighted Average Cost of Capital PLEASE SHOW WORKINGS CLEARLY
2. Consider Higgins Production which has the following information about its capital structures:Debt - 1,500, 5 percent coupon bonds outstanding, $1,000 par value, 7 years to maturity, selling for 80 percent of par, the bonds make semi-annual payments Common Stock - 100,000 shares outstanding, selling for $45 per share; the beta is 0.80 Preferred Stock - 25,000 shares of 6 percent preferred stock outstanding, currently selling for $150 per share Market Information - 6 percent market risk premium and 4 percent risk-free rate.Required: Calculate the following if the company has a tax rate of 36 percent.i. Total Market Value for the Firm ii. After-tax cost of Debt iii. Cost of Equity iv. Cost of Preferred Stock v. Weighted Average Cost of Capital
2. Consider Higgins Production which has the following information about its capital structures:Debt - 1,500, 5 percent coupon bonds outstanding, $1,000 par value, 7 years to maturity, selling for 80 percent of par, the bonds make semi-annual payments  Common Stock - 100,000 shares outstanding, selling for $45 per share; the beta is 0.80 Preferred Stock - 25,000 shares of 6 percent preferred stock outstanding, currently selling for $150 per share Market Information - 6 percent market risk premium and 4 percent risk-free rate. Required: Calculate the following if the company has a tax rate of 36 percent.i. Total Market Value for the Firmii. After-tax cost of Debtiii. Cost of Equityiv. Cost of Preferred Stockv. Weighted Average Cost of Capital 3.Jones Cricket Institute issued a 30 year, 8 percent semi-annual bond 3 year ago. The bond currently sells for 93 percent of its face value. The Company’s tax rate is 35%. a. What is the pre-taxed cost of debt?b. What is the after tax cost of…
2. Consider Higgins Production which has the following information about its capital structures: Debt - 1,500, 5 percent coupon bonds outstanding, $1,000 par value, 7 years to maturity, selling for 80 percent of par, the bonds make semi-annual payments Common Stock - 100,000 shares outstanding, selling for $45 per share; the beta is 0.80 Preferred Stock - 25,000 shares of 6 percent preferred stock outstanding, currently selling for $150 per share Market Information - 6 percent market risk premium and 4 percent risk-free rate. Required: Calculate the following if the company has a tax rate of 36| ent. į. Total Market Value for the Firm ii. After-tax cost of Debt ii. Cost of Equity iv. Cost of Preferred Stock |v. Weighted Average Cost of Capital
JS Corporation has 9 million shares of common stock outstanding, 250,000 shares of RM6 annual dividend preferred stock outstanding, and 105,000 of 7.5% semi-annual bond outstanding. The common stock is currently sells for RM34 per share and has a beta of 1.25, the preferred stock currently sells for RM91 per share, and the bonds have 15 years to maturity and sell for 93% of par. The market risk premium is 8.5%, T-bills are yielding 5%, and corporate tax rate is 35%. Calculate the cost of debt and Weighted Average Cost of Capital (WACC).
1) Bombay Inc has 8.5 million shares of common stock outstanding, 250,000shares of 5% preferred stock outstanding, and 135,000 7.5% semi-annualbonds outstanding, par value $1000 EACH. The common stock currently sellsfor $34 per share and has a beta of 1.25, the preferred stock currently sells for$91 per share, and the bonds have 15 years to maturity and sell for 114% ofpar. The market risk premium is 7.5%, T-bills are yielding 4%, and thecompany’s tax rate is 35%.a) Calculate the firm’s market value capital structure.b) Calculate the company WACCc) If Bombay Inc generates a 7.5% with this capital, is Bombay Incdestroying or adding value discuss.

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