Accounts Payable Notes Payable Long Term Debt Common Stock Retained Earnings Total Liabilities & Equity $ 275,000 $ 315,000 $ 495,000 $925,000 $2,450,000 $4,460,000 Pre-Tax Cost of Debt: Intermediate Debt: 4.5% Long Term Debt: 6.5% Tax Rate: 21% Return on Equity: 11% Dividends per share: $0.20 Earnings per share: $0.90 C/S market price: $55 C/S outstanding: 80000 shares This company uses intermediate debt, long-term debt and common equity to finance its operations. With the information presented above: a. Calculate the firm's debt ratio (book value and market value based) b. Calculate the firm's WACC c. Calculate the new firm's WACC if the firm issued 150,000 new common stock at a flotation cost of $1.20 per share. The new issuance generates $4.5 million.
Accounts Payable Notes Payable Long Term Debt Common Stock Retained Earnings Total Liabilities & Equity $ 275,000 $ 315,000 $ 495,000 $925,000 $2,450,000 $4,460,000 Pre-Tax Cost of Debt: Intermediate Debt: 4.5% Long Term Debt: 6.5% Tax Rate: 21% Return on Equity: 11% Dividends per share: $0.20 Earnings per share: $0.90 C/S market price: $55 C/S outstanding: 80000 shares This company uses intermediate debt, long-term debt and common equity to finance its operations. With the information presented above: a. Calculate the firm's debt ratio (book value and market value based) b. Calculate the firm's WACC c. Calculate the new firm's WACC if the firm issued 150,000 new common stock at a flotation cost of $1.20 per share. The new issuance generates $4.5 million.
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
Chapter9: Long-term Liabilities
Section: Chapter Questions
Problem 87E: Cost of Debt Financing Stinson Corporations cost of debt financing is 6%. Its tax rate is 30%....
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Financial Ratios
A Ratio refers to a figure calculated as a reference to the relationship of two or more numbers and can be expressed as a fraction, proportion, percentage, or the number of times. When the number is determined by taking two accounting numbers derived from the financial statements, it is termed as the accounting ratio.
Return on Equity
The Return on Equity (RoE) is a measure of the profitability of a business concerning the funds by its stockholders/shareholders. ROE is a metric used generally to determine how well the company utilizes its funds provided by the equity shareholders.
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![Accounts Payable
Notes Payable
Long Term Debt
Common Stock
Retained Earnings
Total Liabilities &
Equity
$ 275,000
$ 315,000
$ 495,000
$ 925,000
$2,450,000
$4,460,000
Pre-Tax Cost of Debt:
Intermediate Debt: 4.5%
Long Term Debt: 6.5%
Tax Rate: 21%
Return on Equity: 11%
Dividends per share: $0.20
Earnings per share: $0.90
C/S market price: $55
C/S outstanding: 80000 shares
This company uses intermediate debt, long-term debt and common equity to
finance its operations. With the information presented above:
a. Calculate the firm's debt ratio (book value and market value based)
b. Calculate the firm's WACC
c. Calculate the new firm's WACC if the firm issued 150,000 new common stock
at a flotation cost of $1.20 per share. The new issuance generates $4.5 million.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa7b0925a-62a5-4510-9cb9-3fd1f0169fe6%2Fb39455ac-af98-4c3b-88ec-797ed9f5c30c%2Fzff0fhp_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Accounts Payable
Notes Payable
Long Term Debt
Common Stock
Retained Earnings
Total Liabilities &
Equity
$ 275,000
$ 315,000
$ 495,000
$ 925,000
$2,450,000
$4,460,000
Pre-Tax Cost of Debt:
Intermediate Debt: 4.5%
Long Term Debt: 6.5%
Tax Rate: 21%
Return on Equity: 11%
Dividends per share: $0.20
Earnings per share: $0.90
C/S market price: $55
C/S outstanding: 80000 shares
This company uses intermediate debt, long-term debt and common equity to
finance its operations. With the information presented above:
a. Calculate the firm's debt ratio (book value and market value based)
b. Calculate the firm's WACC
c. Calculate the new firm's WACC if the firm issued 150,000 new common stock
at a flotation cost of $1.20 per share. The new issuance generates $4.5 million.
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