Please correct answer and don't used hand raiting (Calculating the weighted average cost of capital) Crypton Electronics has a capital structure consisting of 44percent common stock and 56 percent debt. A debt issue of $1,000 par value, 8.5 percent bonds that mature in 15years and pay annual interest will sell for $774. Common stock of the firm is currently selling for $24.92 per shareand the firm expects to pay a $3.31 dividend next year. Dividends have grown at the rate of 4.5 percent per year andare expected to continue to do so for the foreseeable future. What is Crypton's cost of capital when the firm's tax rateis 20 percent?789101112a. The after-tax cost of debt is %. (Round to two decimal places.)b. The cost of common equity is ☐ %. (Round to two decimal places.)c. Crypton's cost of capital is %. (Round to three decimal places.)13141516171819202122242526

Step 1: After-tax cost of debt (Kd)Formula:Kd=(Annual Interest Payment/Current Price of Debt)×(1−Tax…

Answered: (Calculating the weighted average cost…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter15: Dividend Policy

Section: Chapter Questions

Problem 15P

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Blooming Ltd. currently has the following capital structure: Debt: $2,500,000 par value of outstanding bond that pays annually 12% coupon rate with an annual before-tax yield to maturity of 109%. The bond issue has face value of $1,000 and will mature in 25 years. Ordinary shares: 65,000 outstanding ordinary shares. The firm plans to pay a $7.50 dividend per share in the next financial year. The firm is maintaining 3% annual growth rate in dividend, which is expected to continue indefinitely. Preferred shares: 40 000 outstanding preferred shares with face value of $100, paying fixed dividend rate of 14%. Company tax rate is 30%. Required: Complete the following tasks: 3) Calculate the current price of the corporate bond? b) Calculate the current price of the ordinary share if the average return of the shares in the same industry is 9%: - c) Calculate the current value of the preferred share if the average return of the shares in the same industry is 12% d) Calculate the current market…
Blooming Ltd. currently has the following capital structure: Debt: $2,500,000 par value of outstanding bond that pays annually 12% coupon rate with an annual before-tax yield to maturity of 10%. The bond issue has face value of $1,000 and will mature in 25 years. Ordinary shares: 65,000 outstanding ordinary shares. The firm plans to pay a $7.50 dividend per share in the next financial year. The firm is maintaining 3% annual growth rate in dividend, which is expected to continue indefinitely. Preferred shares: 40 000 outstanding preferred shares with face value of $100, paying fixed dividend rate of 14%. Company tax rate is 30%. Required: Complete the following tasks: Calculate the current price of the corporate bond? Calculate the current price of the ordinary share if the average return of the shares in the same industry is 9%? Calculate the current value of the preferred share if the average return of the shares in the same industry is 12% Calculate the current market…
Blooming Ltd. currently has the following capital structure:Debt: $2,500,000 par value of outstanding bond that pays annually 12% coupon rate with an annual before-tax yield to maturity of 10%. The bond issue has face value of $1,000 and will mature in 25 years.Ordinary shares: 65,000 outstanding ordinary shares. The firm plans to pay a $7.50 dividend per share in the next financial year. The firm is maintaining 3% annual growth rate in dividend, which is expected to continue indefinitely.Preferred shares: 40 000 outstanding preferred shares with face value of $100, paying fixed dividend rate of 14%.Company tax rate is 30%.Required: Complete the following tasks:a) Calculate the current price of the corporate bond? b) Calculate the current price of the ordinary share if the average return of the shares in the same industry is 9%? c) Calculate the current value of the preferred share if the average return of the shares in the same industry is 12%d) Calculate the current market value…
Blooming Ltd. currently has the following capital structure:Debt: $2,500,000 par value of outstanding bond that pays annually 12% coupon rate with an annual before-tax yield to maturity of 10%. The bond issue has face value of $1,000 and will mature in 25 years.Ordinary shares: 65,000 outstanding ordinary shares. The firm plans to pay a $7.50 dividend per share in the next financial year. The firm is maintaining 3% annual growth rate in dividend, which is expected to continue indefinitely.Preferred shares: 40 000 outstanding preferred shares with face value of $100, paying fixed dividend rate of 14%.Company tax rate is 30%.Required: Complete the following tasks:a) Calculate the current price of the corporate bond? b) Calculate the current price of the ordinary share if the average return of the shares in the same industry is 9%? c) Calculate the current value of the preferred share if the average return of the shares in the same industry is 12%d) Calculate the current market value…
Blooming Ltd. currently has the following capital structure: Debt: $2,500,000 par value of outstanding bond that pays annually 12% coupon rate with an annual before-tax yield to maturity of 10%. The bond issue has face value of $1,000 and will mature in 25 years. Ordinary shares: 65,000 outstanding ordinary shares. The firm plans to pay a $7.50 dividend per share in the next financial year. The firm is maintaining 3% annual growth rate in dividend, which is expected to continue indefinitely. Preferred shares: 40 000 outstanding preferred shares with face value of $100, paying fixed dividend rate of 14%. Company tax rate is 30%. Required: Complete the following tasks: Calculate the current market value (rounded off to the nearest whole number) and capital structure of the firm (rounded off to two decimal places). Identify the total weights of equity funding (2 marks) Compute the weighted average cost of capital (WACC) under the traditional tax system for the firm, using…
Blooming Ltd. currently has the following capital structure: Debt: $2,500,000 par value of outstanding bond that pays annually 12% coupon rate with an annual before-tax yield to maturity of 10%. The bond issue has face value of $1,000 and will mature in 25 years. Ordinary shares: 65,000 outstanding ordinary shares. The firm plans to pay a $7.50 dividend per share in the next financial year. The firm is maintaining 3% annual growth rate in dividend, which is expected to continue indefinitely. Preferred shares: 40 000 outstanding preferred shares with face value of $100, paying fixed dividend rate of 14%. Company tax rate is 30%. Required: Complete the following tasks: Calculate the current price of the corporate bond? Calculate the current price of the ordinary share if the average return of the shares in the same industry is 9%? Calculate the current value of the preferred share if the average return of the shares in the same industry is 12% Calculate the current market…
Vaccine Development Corp (VDC) has a current stock price of $15.35 and is expected to trade for $16.50 in 1 year. Of VDC's equity cost of capital is 13%, what is its expected dividend in 1 year

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