A firm has the following data: Target capital structure of 25% debt, 10% preferred stock, and 65% common equity; tax rate = 25%; rd = 7%; rps = 7.5%; and rs = 11.5%. Assume the firm will not isssue new stock. What is this firm's WACC? Wd Wps Ws Tax rate rd rps I's WACC 25% 10% 65% 25% 7.0% 7.5% 11.5% * Please fill in the yellow cells. Show your formula and calculation. * Refer to page 39 of the PPT slides. A company's preferred stock currently trades at $50 per share and it pays a $3 annual dividend. Flotation costs are equal to 3% of the gross proceeds. If the company issues preferred stock, what is the cost of that stock? Preferred stock price Dividend per share Flotation percentage $50 $3 3% Cost of preferred stock = annual dividend per Share / (Stock Price X (1- Floatation percentage)) *Please fill in the yellow cells. Show your formula and calculation. * Flotation costs are incurred by a publicly-traded company when it issues new securities and incurs expenses, such as underwriting fees, legal fees, and registration fees. A company has outstanding long-term bonds with a face value of $1,000, a 10% coupon rate, 25 years remaining until maturity, and a current market value of $1,214.82. If it pays interest semiannually, what is the nominal annual required rate of return on debt? If the company's tax rate is 25%, what is the after-tax cost of debt? Number of years to maturity Number of payments per year Annual coupon rate Face value Tax rate N = 25 2 10% 5% per compounding period $1,000 PV= PMT= FV = I/YR=rd= Annualized ra= A-Tra= 25% 50 because interest is paid twice per year for 25 years that are remaining until maturity ($1,214.82) $50 $1,000 X 5% $1,000 This is the Face Value the bond issuer has to pay to the bond holder 4.000% 2 X 1/YR Annualized rd X (1 - Tax Rate)
A firm has the following data: Target capital structure of 25% debt, 10% preferred stock, and 65% common equity; tax rate = 25%; rd = 7%; rps = 7.5%; and rs = 11.5%. Assume the firm will not isssue new stock. What is this firm's WACC? Wd Wps Ws Tax rate rd rps I's WACC 25% 10% 65% 25% 7.0% 7.5% 11.5% * Please fill in the yellow cells. Show your formula and calculation. * Refer to page 39 of the PPT slides. A company's preferred stock currently trades at $50 per share and it pays a $3 annual dividend. Flotation costs are equal to 3% of the gross proceeds. If the company issues preferred stock, what is the cost of that stock? Preferred stock price Dividend per share Flotation percentage $50 $3 3% Cost of preferred stock = annual dividend per Share / (Stock Price X (1- Floatation percentage)) *Please fill in the yellow cells. Show your formula and calculation. * Flotation costs are incurred by a publicly-traded company when it issues new securities and incurs expenses, such as underwriting fees, legal fees, and registration fees. A company has outstanding long-term bonds with a face value of $1,000, a 10% coupon rate, 25 years remaining until maturity, and a current market value of $1,214.82. If it pays interest semiannually, what is the nominal annual required rate of return on debt? If the company's tax rate is 25%, what is the after-tax cost of debt? Number of years to maturity Number of payments per year Annual coupon rate Face value Tax rate N = 25 2 10% 5% per compounding period $1,000 PV= PMT= FV = I/YR=rd= Annualized ra= A-Tra= 25% 50 because interest is paid twice per year for 25 years that are remaining until maturity ($1,214.82) $50 $1,000 X 5% $1,000 This is the Face Value the bond issuer has to pay to the bond holder 4.000% 2 X 1/YR Annualized rd X (1 - Tax Rate)
Glencoe Algebra 1, Student Edition, 9780079039897, 0079039898, 2018
18th Edition
ISBN:9780079039897
Author:Carter
Publisher:Carter
Chapter7: Exponents And Exponential Functions
Section: Chapter Questions
Problem 68SGR
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Transcribed Image Text:A firm has the following data: Target capital structure of 25% debt, 10% preferred stock, and 65% common equity; tax rate =
25%; rd = 7%; rps = 7.5%; and rs = 11.5%. Assume the firm will not isssue new stock. What is this firm's WACC?
Wd
Wps
Ws
Tax rate
rd
rps
I's
WACC
25%
10%
65%
25%
7.0%
7.5%
11.5%
* Please fill in the yellow cells. Show your formula and calculation.
* Refer to page 39 of the PPT slides.
Transcribed Image Text:A company's preferred stock currently trades at $50 per share and it pays a $3 annual dividend. Flotation costs
are equal to 3% of the gross proceeds. If the company issues preferred stock, what is the cost of that stock?
Preferred stock price
Dividend per share
Flotation percentage
$50
$3
3%
Cost of preferred stock = annual dividend per Share / (Stock Price X (1- Floatation percentage))
*Please fill in the yellow cells. Show your formula and calculation.
* Flotation costs are incurred by a publicly-traded company when it issues new securities and incurs expenses, such as underwriting fees, legal fees, and registration fees.
A company has outstanding long-term bonds with a face value of $1,000, a 10% coupon rate, 25 years remaining until
maturity, and a current market value of $1,214.82. If it pays interest semiannually, what is the nominal annual required rate
of return on debt? If the company's tax rate is 25%, what is the after-tax cost of debt?
Number of years to maturity
Number of payments per year
Annual coupon rate
Face value
Tax rate
N =
25
2
10% 5% per compounding period
$1,000
PV=
PMT=
FV =
I/YR=rd=
Annualized ra=
A-Tra=
25%
50 because interest is paid twice per year for 25 years that are remaining until maturity
($1,214.82)
$50 $1,000 X 5%
$1,000 This is the Face Value the bond issuer has to pay to the bond holder
4.000%
2 X 1/YR
Annualized rd X (1 - Tax Rate)
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