Calculate the weighted average cost of capital for the following Dunkie company (WACC). The Dunkie company's bond is currently selling for 102% of par. The bond is a semi-annual, 20-year bond issued 7 years ago with a face value of $1000.00 with a coupon of 8%. There were 95,000 bonds issued. The company's corporate tax rate is 32%. The Dunkie company has issued both preferred and common stock. The preferred stock pays $3.35 per share and is selling for $97.00. There are 100,000 shares of preferred stock. The company has a beta of .95. You've calculated the return of the market to be 9.5% and the market risk premium is 5.75%. The Dunkie company stock is selling for $15.75 and there are 5,000,000 shares outstanding. What is the weighted average cost of capital for the Dunkie company?

Calculate the weighted average cost of capital for the following Dunkie company (WACC). The Dunkie company's bond is currently selling for 102% of par. The bond is a semi-annual, 20-year bond issued 7 years ago with a face value of $1000.00 with a coupon of 8%. There were 95,000 bonds issued. The company's corporate tax rate is 32%. The Dunkie company has issued both preferred and common stock. The preferred stock pays $3.35 per share and is selling for $97.00. There are 100,000 shares of preferred stock. The company has a beta of .95. You've calculated the return of the market to be 9.5% and the market risk premium is 5.75%. The Dunkie company stock is selling for $15.75 and there are 5,000,000 shares outstanding. What is the weighted average cost of capital for the Dunkie 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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The JIRAF Company has 1700 bonds outstanding that have a market price of $1200 each and a face value of $1000. floatation cost is 0.015 the bond pays coupon of 0.055 quarterly for 11 years. The company also has 6,00 shares of preferred stock at a market price of $40 and dividends 1.5 each par value 20 dollars. The common stock is priced at $29 a share it is undervalued by $1.5 and there are 70000 shares outstanding, par value is 5 dollars the stock paid this year $1.1 and will continue to grow at a rate of 0.035 TAXES ARE 0.25 what is the cost of debt after tax? what is the cost of PS what is the cost of common stock? what is the weight of the bond according to book value method what is the weight of the stock according to book value method what is the weight of preferred stock according to book value method what is the weight of preferred stock according to book value method
Magliaro Industries issued a 30-year, 10% semiannual bond 4 years ago. The bond currently sells for 94% of its face value. The company's tax rate is 38%. Suppose the book value of the debt issue is $50 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 14 years left to maturity; the book value of this issue is $50 million and the bonds sell for 54% of par. Assume the par value of the bond is $1,000. What is the company's total book value of debt? (Enter the answer in dollars. Omit $ sign in your response.) Total book value What is the company's total market value of debt? (Enter the answer in dollars. Omit $ sign in your response.) Total market value $740000C What is your best estimate of the after-tax cost of debt? (Do not round intermediate calculations. Enter your answer rounded to 2 decimal places.) Cost of debt %
Phillips Equipment Inc. has 72,000 bonds outstanding that are each selling at $1,066 in the market. Each bond has 8 years left to maturity, a $1000 face value and a coupon rate of 5%. Coupons are paid semiannually. The company also has 1.9 million shares of common stock outstanding. The common stock has a beta of 1.35 and sells for $44 a share. The U.S. Treasury bill is yielding 3.1 percent and the return on the market is 9.5 percent. The corporate tax rate is 35 percent. (a) Determine the firms market value weight for debt (Enter answers as a % to 2 decimal places) 8.41 % (b) Determine the firms market value weight for equity (Enter answers as a % to 2 decimal places) 91.59 % (c) What is the firms after tax cost of debt? (Enter answers as a % to 2 decimal places) 2.81% (d) What is the firms cost of equity? (Enter answers as a % to 2 decimal places) 11.74 % (e) Using the information you have found in the earlier parts, determine the Cost of Capital for Phillips Equipment Inc. (Enter…
Phillips Equipment Inc. has 72,000 bonds outstanding that are each selling at $1,066 in the market. Each bond has 8 years left to maturity, a $1000 face value and a coupon rate of 5%. Coupons are paid semiannually. The company also has 2.8 million shares of common stock outstanding. The common stock has a beta of 1.05 and sells for $45 a share. The U.S. Treasury bill is yielding 2.4 percent and the return on the market is 9 percent. The corporate tax rate is 35 percent. (a) Determine the firms market value weight for debt (Enter answers as a % to 2 decimal places) [ (b) Determine the firms market value weight for equity (Enter answers as a % to 2 decimal places) [ (c) What is the firms after tax cost of debt? (Enter answers as a % to 2 decimal places)[ % (d) What is the firms cost of equity? (Enter answers as a % to 2 decimal places) (e) Using the information you have found in the earlier parts, determine the Cost of Capital for Phillips Equipment Inc. (Enter answers as a % to 2…
Given the following information for Magrath Power Co., find the WACC. Assume the company’s tax rate is 35%. Debt: 10,000 6.4% coupon bonds outstanding, $1,000 par value, 25 years to maturity, selling for 108% of par; the bonds make semiannual payments. Common stock: 495,000 shares outstanding, selling for $63 per share; the beta is 1.15. Preferred stock: 35,000 shares of 3.5% preferred stock outstanding, currently selling for $72 per share. Market: 7% market risk premium and 3.2% risk-free rate.
Gentrix Inc. has two major sources of financing—common stock and long-term debt. They currently have 1,000,000 shares of stock outstanding, which are trading at a price of $20 per share. Two years ago, they issued $5,000,000 of 20-year debt to the general public at par value. The debt pays an annual coupon of 7%. The coupon is paid annually. Given their current capital structure, Gentrix has estimated that their cost of equity is 15%. Gentrix faces a marginal tax rate of 40%. It has been exactly two years since Gentrix issued their debt, and interest rates have increased. If the long-term debt is currently having a yield to maturity of 9%, what is the current value of the outstanding debt? Is it selling at a premium or discount to par value? (Remember that coupon payments of 7% are made annually rather than the semiannually.) Based on Gentrix’s current capital structure, what is the firm’s weighted average cost of capital? Assume that Gentrix currently has a capital structure that is…
Big Door Company has 8.7 million shares outstanding, which are currently trading for about $13 per share and have a levered equity beta of 1.2. Big Door has 19,900 outstanding bonds, with a 4% coupon rate, payable semi-annually and due in 10 years. The bonds are rated BBB. Currently the credit spread for BBB is 178 basis points over equivalent-maturity Government of Canada debt. The current yield on 10-year Canada bonds is 5%, compounded semi-annually. The risk-free interest rate is 2%, and the market risk premium is 6.6%. The company has a 35% tax rate. (Do not round intermediate calculations.) a. Calculate Big Door's WACC. (Round your answer to 2 decimal places.) WACC b. Calculate Big Door's unlevered beta, using the following formula: (Round your answer to 2 decimal places.) Pleveret Pdebtx (1–Tc)×D/E BU 1+(1–Tc)×D/E es Unlevered beta c. If Big Door was 50% debt-financed, what would be its WACC? Assume that the beta of its debt is unchanged by the capital structure change. (Round…
Nikul
The Smith Company has 10,000 bonds outstanding. The bonds are selling at 102% of face value, have a 8% coupon rate, pay interest annually, mature in 10 years, and have a face value of $1,000. There are 500,000 shares of 9% preferred stock outstanding with a current market price of $91 a share and a par value of $100. In addition, there are 1.25 million shares of common stock outstanding with a market price of $64 a share and a beta of .95. The most recent dividend paid by the company on the common stock was of $1.10 and it expects to increase those dividends by 3% annually forever. The firm's marginal tax rate is 35%. The overall stock market is yielding 12% and the Treasury bill rate is 3.5%.What is the weighted average cost of capital using the cost equity calculated based on CAPM?

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