Consider the following information for Watson Power Company:Debt:Common stock:Preferred stock:Market:4,000 8 percent coupon bonds outstanding, $1,000 par value, 21years to maturity, selling for 102 percent of par; the bonds makesemiannual payments.Find the WACC.96,000 shares outstanding, selling for $56 per share; the beta is1.07.13,500 shares of 7 percent preferred stock outstanding,currently selling for $104 per share.9.5 percent market risk premium and 7 percent risk-free rate.Assume the company's tax rate is 34 percent.

Weighted average cost of capital is the minimum rate of return is company must earn on its…

Consider the following information for Watson Power Company: Debt: Common stock: Preferred stock: Market: 4,000 8 percent coupon bonds outstanding, $1,000 par value, 21 years to maturity, selling for 102 percent of par; the bonds make semiannual payments. 96,000 shares outstanding, selling for $56 per share; the beta is 1.07. 13,500 shares of 7 percent preferred stock outstanding, currently selling for $104 per share. 9.5 percent market risk premium and 7 percent risk-free rate. Assume the company's tax rate is 34 percent.

Consider the following information for Watson Power Company: Debt: Common stock: Preferred stock: Market: 4,000 8 percent coupon bonds outstanding, $1,000 par value, 21 years to maturity, selling for 102 percent of par; the bonds make semiannual payments. 96,000 shares outstanding, selling for $56 per share; the beta is 1.07. 13,500 shares of 7 percent preferred stock outstanding, currently selling for $104 per share. 9.5 percent market risk premium and 7 percent risk-free rate. Assume the company's tax rate is 34 percent.

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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Grossnickle Corporation issued 20-year, noncallable, 9.5% annual coupon bonds at their par value of $1,000 one year ago. Today, the market interest rate on these bonds is 7.2%. What is the current price of the bonds, given that they now have 19 years to maturity? a. $1,311.27 b. $1,245.26 c. $1,234.19 d. $1,303.84 e. $1,239.92
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?
1.Positif Corporation has paid annual dividends of RM1.16, RM1.20, RM1.25, RM1.10, and RM0.95 over the past five years respectively. Calculate the average dividend growth rate? 2. Cheang Corporation issued a 20 years, non-callable, 7.5 percent annual coupon bonds at their par value of RM1000 one year ago. Today, the market interest rate on these bonds is 5.5 percent. What is the current price of the bonds, givens that they have 19 years to maturity? 3 .Berhad’s bonds make an annual coupon interest payment of 7.35 percent. The bonds have a par value of RM1000, current price is at RM1130, and mature in 12 years. What is the yield to maturity on these bonds? 4. Hunda Corporation’s expected year end dividend amounting to RM1.60, and its required return is 11 percent. The dividend yield is 6 percent and its growth rate is expected to be constant in the future. What is Hunda Corporation’s expected stock price in 7 years?
N8
AEP issued 20-year 7.4% annual coupon bonds at their par value of $1,000 one year ago. Today, the market interest rate on these bonds is 5.5%. What is the price of the bonds today? $1,196.13 $1,220.55 $1,281.57 $1,000.85 $1,013.05
Harnett Computing has 10-year, non-callable, 9.0% semi-annual coupon bonds outstanding. The bonds have a par value of $1,000 and a nominal YTM of 9.42%. What is the bonds' current market price? $937.69 $961.38 $1,038.62 $950.33 $973.17
Suppose Westerfield Co. has the following financial information: Debt: 900, 000 bonds outstanding with a face value of $1,000. The bonds currently trade at 85% of par and have 12 years to maturity. The coupon rate equals 7%, and the bonds make semiannual interest payments. Preferred stock: 600,000 shares of preferred stock outstanding; currently trading for $108 per share, paying a dividend of $9 annually. Common stock: 25,000,000 shares of common stock outstanding; currently trading for $185 per share. Beta equals 1.22. Market and firm information: The expected return on the market is 9%, the risk - free rate is 5%, and the tax rate is 21 %. Calculate the weight of debt in the capital structure. (Enter percentages as decimals and round to 4 decimals)
Carnival Corporation (CCL) recently sold new bonds at discount price of $949.44. The bonds have a short 4-year maturity, have a coupon rate of 11.50%, and pay interest semi-annually. In addition to the $9.302 billion worth of bonds outstanding, Carnival also has $12.009 billion worth of common stock equity outstanding. According to Yahoo! Finance, Carnival's stock has a beta of 1.95. Currently, the expected return on the market portfolio and risk-free rate are, 6.80% and 0.74%, respectively. a. Calculate the market value weights for Carnival's capital structure. b. Calculate Carnival's cost of equity using the CAPM. c. Calculate Carnival's before-tax cost of debt. d. Calculate Carnival's current WACC using a 21%corporate tax rate.
Grossnickle Corporation issued 20-year, noncallable, 7.2% annual coupon bonds at their par value of $1,000 one year ago. Today, the market interest rate on these bonds is 5.6%. What is the current price of the bonds, given that they now have 19 years to maturity? a. $1,237.42 b. $1,184.25 c. $1,194.73 d. $1,230.68 e. $1,189.63
Grossnickle Corporation issued 25-year, noncallable, 6.9% annual coupon bonds at their par value of $1,000 one year ago. Today, the market interest rate on these bonds is 4.5%. What is the current price of the bonds, given that they now have 24 years to maturity? a. $1,392.90 b. $1,401.92 c. $1,347.89 d. $1,363.52 e. $1,355.88
6. The semi-annual, 10% coupon bonds of Australis Inc. are selling at par. The effective annual rate of these bonds must be equal to: A. 5% B. (1.05)2 - 1 C. 10% D. (1.10)2 - 1 ALPHO Inc. has paid annual dividends of $1.25 and $1.62, over the past two years. Dividends in the future are expected to be $2.00 and $2.45 over the next two years, then grow at a constant rate of 4%. Which one of the following formulas should be used to compute the value of the stock today? P0= D1/(1+k)1+ D2/(1+k)2 + ... + Dn/(1+k)n + Pn/(1+k)n P0= D/k P0= D1/(1+k)n+ g P0= D1/(k-g)
A $1,000 face value, 6.4% coupon bond pays interest semi-annually and matures in ten years. It has a yield-to-maturity of 7.1325%. The bond's price is closest to $920 $1,203 $1,061 $948 2. Pilgrim Corp. stock currently sells for $25 per share? The annual dividend payment is $1.00 per share and earnings per share are $3.00. What is the dividend payout ratio?

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