Consider Higgins Production which has the following information about its capital stru bt - 1,500, 5 percent coupon bonds outstanding, $1,000 par value, 7 years to maturity, percent of par, the bonds make semi-annual payments Common Stock - 100,000 shares outstanding, selling for $45 per share; the beta is 0.8 Preferred Stock - 25,000 shares of 6 percent preferred stock outstanding, currently se $150 per share Market Information - 6 percent market risk premium and 4 percent risk-free rate. quired: Calculate the following if the company has a tax rate of 36 percent. Total Market Value for the Firm After-tax cost of Debt

Consider Higgins Production which has the following information about its capital stru bt - 1,500, 5 percent coupon bonds outstanding, $1,000 par value, 7 years to maturity, percent of par, the bonds make semi-annual payments Common Stock - 100,000 shares outstanding, selling for $45 per share; the beta is 0.8 Preferred Stock - 25,000 shares of 6 percent preferred stock outstanding, currently se $150 per share Market Information - 6 percent market risk premium and 4 percent risk-free rate. quired: Calculate the following if the company has a tax rate of 36 percent. Total Market Value for the Firm After-tax cost of Debt

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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Dothraki has 50,000,000 shares of common stock outstanding that are trading for $29.70 per share. The company’s beta is 1.4. Financial analysts estimate that the market risk premium over 10-year Treasury Bonds is 6 percent and 10-year Treasury Bonds currently yield 2%. Dothraki’s outstanding bonds have a 6.0% coupon rate, a $1,000 face value, pay semi-annual coupons, and mature in 10 years. There are 450,000 of these bonds outstanding and they are currently selling in the open market for 110% of par value. The details of your relevant cash flow projections (Operating Cash Flow, Capital Spending, Net Working Capital, and Total Cash Flow) should be clearly presented along with the NPV and IRR in the cover sheet of answers, along with your final recommendation. You have also informed you that the tax rate to use for the WACC and the capital budgeting analysis is 20%. What is the WACC for Dothraki for this project?
Calculate the current price of the ordinary share if the average return of the shares in the same industry is 9%? 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. Thefirm 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.Preferredshares: 40000 outstanding preferred shares with face value of $100,paying fixed dividend rate of 14%.Company tax rate is 30%. Required: Complete the following task
An investment company has a portfolio of 1 million shares of XYZ Ltd. purchased recently at Rs 200 per share. Assuming 20% annual volatility, calculate the 1 day VaR at (a) 68% confidence level (b) 95% confidence level.
What is the WACC for a company with the following information: Equity Information: 50 million shares, $80 per share, Beta = 1.15, Market risk premium =9%, Risk-free rate = 5%. Debt Information: 1 million outstanding bonds with a face value of $1,000 each. Current Price = $1,100, Coupon rate = 9%, semiannual coupons, 15 years to maturity Tax rate = 20%
Saeed Construction’s CFO has the following information to estimate the company’s weighted average cost of capital:The company currently has 20-year, 8.5% semi-annual coupon bonds that currently sells for Rs.945.The company’s stock has a beta of 0.80.The market risk premium, RPm , equals 3%.The risk-free rate is 2.4% and market rate is 5.4%. The company’s growth (g) = 0%, stock price (P0) = Rs.50, current dividend (D0) = Rs.2 and additional/new equity flotation cost = 15%.The company has outstanding preferred stock that pays a Rs.2.00 annual dividend. The preferred stock sells for Rs.25 a share.The company’s tax rate is 40%. The company’s capital structure consists of 40% long-term debt, 40% common stock, and 20% preferred stock. Requirement: Calculate Component cost of debt, cost of equity, cost of preferred stock and weighted average cost of capital.
An investor with a required return of 15 percent for very risky investments in common stock has analyzed three firms and must decide which, if any, to purchase. The information is as follows: Firm A B C Current earnings $ 1.60 $ 3.20 $ 6.80 Current dividend $ 2.10 $ 2.50 $ 6.40 Expected annual growth rate in 5 % 2 % -3 % dividends and earnings Current market price $ 24 $ 23 $ 41 What is the maximum price that the investor should pay for each stock based on the dividend-growth model? Round your answers to the nearest cent. Stock A: $ Stock B: $ Stock C: $ If the investor does buy stock A, what is the implied percentage return? Round your answer to two decimal places. % If the appropriate P/E ratio is 17, what is the maximum price the investor should pay for each stock? Round your answers to the nearest cent. Stock A: $ Stock B: $ Stock C: $ If the appropriate P/E ratio is 5, what is the maximum…
Paul Sharp is CFO of Fast Rocket Inc. He tries to determine the cost of equity financing for his company. The stock has a beta of 1.02. Paul estimated that the market return is 6.48%. The current rate for 10-year Treasury Bonds is 2.95%. Calculate cost of common equity financing using CAPM -- SML formula
Give typing answer with explanation and conclusion 2. Caspian Sea Drinks' is financed with 66.00% equity and the remainder in debt. They have 10.00-year, semi-annual pay, 5.95% coupon bonds which sell for 97.98% of par. Their stock currently has a market value of $25.96 and Mr. Bensen believes the market estimates that dividends will grow at 3.64% forever. Next year’s dividend is projected to be $2.29. Assuming a marginal tax rate of 29.00%, what is their WACC (weighted average cost of capital)?
If you need $100,000 at the beginning of each year during your 18 years of returement and you can earn 6% annually during that time. What would you need to contribute at the end of each month for your 43 working years if during that time it can earn 10.8% annually?
Vestal Corp. has a beta of 1.3, the market risk premium is 7% and the risk-free rate of interest is 4%. Vestal's preferred stock pays a dividend of $4 each year and trades at a price of $40 per share. Vestal's debt trades with a yield to maturity of 8.5%. The market value of equity, preferred stock and debt for Vestal Corp. are $80 billion, $40 billion and $120 billion, respectively. What is Vestal's weighted average cost of capital if its tax rate is 30%?
Crow Academy leadership wants to know its WACC given its current capital structure. The capital structure data is as follows. Equity: 2,843,200 shares outstanding, price $18.59, stock beta 0.96. Preferred stock: 675,000 shares outstanding, price $21.74, fixed dividend $0.75. Debt: 242,000 zero annual coupon bonds issued, price is 38% of par, 15 years to maturity. If the current market return is 14.28%, the risk-free rate is 3.18%, and the tax rate is 21%, what is the company's weighted average cost of capital (WACC)?
Spartan Machinery stock trades at $60 per share with a beta of 1.5, an estimated market return of 12%, and a risk free rate of 5%. There are 20 million shares outstanding. The company has bonds with a face value $1 billion outstanding and a market value of $980 million. The coupon rate is 9% (semiannual coupons) and there are 10 years to maturity. The company has a tax rate of 38%. What is the WACC?

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