Travellers Inn (Millions of Dollars)Cash$ 10Accounts payable$ 10Accounts20Accruals15receivableInventories20Short-term debtCurrent assets$ 50Current liabilities$ 25Net fixed assets50Long-term debt30Preferred stock (50,000 shares)5Common equityCommon stock (3,800,000 shares)$ 10Retained earnings30Total common equity$ 40Total assets$100Total liabilities and equity$100The following facts also apply to TII:1. The long-term debt consists of 29,412 bonds, each having a 20-year maturity, semiannual payments, a couponrate of 7.8%, and a face value of $1,000. Currently, these bonds provide investors with a yield to maturity of11.8%. If new bonds were sold, they would have an 11.8% yield to maturity.2. TII's perpetual preferred stock has a $100 par value, pays a quarterly dividend per share of $2, and has a yieldto investors of 8%. New perpetual preferred stock would have to provide the same yield to investors, and thecompany would incur a 3.55% flotation cost to sell it.3. The company has 3.8 million shares of common stock outstanding, a price per share = Po$20, dividend pershare =Do = $1, and earnings per shareEPSO$5. The return on equity (ROE) is expected to be 8%.4. The stock has a beta of 1.6. The T-bond rate is 5%, and RPM is estimated to be 5%.5. TII's financial vice president recently polled some pension fund investment managers who hold TII's securitiesregarding what minimum rate of return on TII's common would make them willing to buy the common ratherthan TII bonds, given that the bonds yielded 11.8%. The responses suggested a risk premium over TII bonds of3 percentage points.6. TII is in the 25% federal-plus-state tax bracket. Assume that you were recently hired by TII as a financial analyst and that your boss, the treasurer, has asked you toestimate the company's WACC under the assumption that no new equity will be issued. Your cost of capital shouldbe appropriate for use in evaluating projects that are in the same risk class as the assets TII now operates. Basedon your analysis, answer the following questions. Do not round intermediate calculations. Round your answers totwo decimal places.a. What are the current market value weights for debt, preferred stock, and common stock? (Hint: Do your work indollars, not millions of dollars.)WeightDebt%Preferred stock%Common stock%b. What is the after-tax cost of debt?%c. What is the cost of preferred stock?%d. What is the required return on common stock using CAPM?%e. Use the retention growth equation to estimate the expected growth rate. Then use the expected growth rate andthe dividend growth model to estimate the required return on common stock.%f. What is the required return on common stock using the own-bond-yield-plus-judgmental-risk-premium approach?%g. Use the required return on stock from the CAPM model, and calculate the WACC.%

Disclaimer : “Since you have posted a question with multiple sub-parts, we will solve first three…

Answered: $ 10 Accounts payable $ 10 unts 20…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Preferred shares, $4.55 non-cumulative, 52,000 shares authorized and issued* $ 3,328,000 Common shares, 87,000 shares authorized and issued* 1,392,000 Required:Part A1. Calculate the total dividends paid in each year to the preferred and to the common shareholders.
The Tyler Oil Company's capital structure is as follows: Debt Preferred stock Common equity 15% 20 65 The aftertax cost of debt is 5 percent; the cost of preferred stock is 8 percent; and the cost of common equity (in the form of retained earnings) is 11 percent. Calculate Tyler Oil Company's weighted average cost of capital in a manner similar to Table 11-1. (Round the final answers to 2 decimal places.) Debt (Kd) Preferred stock (Kp) Common equity (Ke) (retained earnings) Weighted average cost of capital (Ka) Weighted Cost % 9.50 %
When 30,000 shares of $10 par - value common stock are issued at $30 per share, Paid - In Capital in Excess of Par, Common Stock is credited for: $300,000 $30,000 $600,000 $900,000
The following figures have been extracted from the financial statements of KND Ltd: Book Value of Current Assets $45 million and Current Liabilities $34.75 million 11% Debentures: $27 million debentures issued at $1,000. Long-term Loan: $7.18 million Preference Share Capital: 8.8 million shares issued at $2 per share Retained Earnings: $28.30 million Ordinary Share Capital: 39 million shares issued at $1 per share General Reserves $9.20 million The following additional information has been provided by the manager of the company: Government bonds are currently yielding 6.3% per annum. The current market return on equity is estimated to be 13.5% per annum. Debenture coupons are paid annually, with 16 years to maturity. The company tax rate is 34%. The loan requires a 9% p.a. interest payment, compounded monthly. A merchant banker suggests that KND Ltd would have to offer a rate of 13.9% p.a. on any new issue of 16-year debentures. 12% Preference shares of KND Ltd are currently…
. Kelton co which produces and sells skiing equipment is financed as follows: Bonds Payable 8% (issued at face value) Preferred $2 Stock $10 Par Common Stock $25 Par 20,000,000 20,000,000 20,000,000 Income tax is estimated at 40% of income Determine the earnings per share of common stock assuming that the income before bond interest and income tax is $10,000,000 $12,000,000 $14,000,000 a. b. C. 8. Baxter Inc. A developer of radiology equipment has stock outstanding as follows: 18.000 shares of forred ctock of $75 par and 40 000 shares of $1
Long-term debt Notes payable, 11% 8% convertible bonds payable 11% bonds payable Total long-term debt Shareholders' equity Preferred stock, 6% cumulative, $50 par value, 108,000 shares authorized, 27,000 shares issued and outstanding Common stock, $1 par, 10,200,000 shares authorized, 1,020,000 shares issued and outstanding Additional paid-in capital Retained earnings Total shareholders' equity The following transactions have also occurred at Cheyenne. $980,000 4,910,000 5,910,000 $11,800,000 $1,350,000 1,020,000 3,970,000 6,050,000 $12,390,000 1. Options were granted on July 1, 2019, to purchase 180,000 shares at $15 per share. Although no options were exercised during fiscal year 2020, the average price per common share during fiscal year 2020 was $20 per share. 2. Each bond was issued at face value. The 8% convertible bonds will convert into common stock at 50 shares per $1,000 bond. The bonds are exercisable after 5 years and were issued in fiscal year 2019. 3. The preferred stock…
A company issued 220 shares of $100 par value common stock for $26,200 cash. The total amount of paid-in capital in excess of par is: Multiple Choice $100. $2,200. $4,200. 633 PM 3/28/2022
Question 2 Julien Company had $800,000 net income in 2021. On 1 January 2021, there were 400,000 ordinary shares outstanding. On I April, 10,000 shares were issued and on I May, the company issued 5% bonus issue on ordinary shares. 30,000 treasury shares were repurchased from the open market at $35 on 1 September. On 1 March 2021, the company issued 200,000 9%, noncumulative and nonconvertible preference shares (at $1 par value). Julien issued S1,000,000 of 8% convertible bonds at face value during 2020. Each $1,000 bond is convertible into 50 ordinary shares. Top executives were granted 100,000 options to buy ordinary shares at S30 if the net income is over $300,000. The beginning and ending market price of the ordinary shares was $46 and $54 respectively during the year 2021 At the financial year-end, dividends on preference shares are declared and paid. In addition, the company declared and paid $5 cash dividends to all ordinary shareholders. Assume the tax rate for 2021 is 40%…
Contributed capital: Western Grass, Inc. Equity Section of Balance Sheet December 31, 2823 Preferred shares, $3 cumulative, 10,000 shares authorized, issued and outstanding Common shares, 100,000 shares authorized; 65,000 shares issued and outstanding Total contributed capital Retained earnings Total equity 75,000 552,500 627 500 581 000 $1,208,500 Required: Using the Information provided, calculate book value per common share assuming: (Round the final answers to 2 decimal places.) a. There are no dividends in arrears. b. There are three years of dividends in arrears. Book Value of Common Shares
Question 1 The following information relates to a company listed on Luse- Mungwi PLC ZMK Issued share capital (1000 shares) Share premium. Reserves. Share holders funds. 6% Irredeemable Debentures. 9% Redeemable Debentures. Bank loan. Total Long Term Liabilities. Million 4 000 2 600 290 6,890 2,800 2,900 1 000 6 700 The current cum interest market value per k100 units is k103 and k105 fir the 6% and 9% Debentures respectively. The 9% Debenture is redeemable at par in 10 years time. The bank loan bears interest rate of 2% above the base rate (current base rate is 15%). The current ex-div market price of shares is k1, 100 and a dividend of K100 per share which is expected to grow at a rate of 5% per year has just been paid. The effective corporation tax rate for Mungwi is 30%. Required: A) Calculate the effective after tax weighted Average Cost of Capital (WACC) fir Mungwi PLC
Dividend constraints The Howe Company's stockholders' equity account is as follows: have been included as part of the $2.1 million retained earnings. a. What is the maximum dividend per share that the firm can pay? (Assume that legal capital includes all paid-in capital.) b. If the firm has $180,000 in cash, what is the largest per-share dividend it can pay without borrowing? The earnings available for common stockholders from this period's operations are $100,000, which c. Indicate the accounts and changes, if any, that will result if the firm pays the dividends indicated in parts a and b. d. Indicate the effects of an $80,000 cash dividend on stockholders' equity. a. The maximum dividend per share that the firm can is $ (Round to the nearest cent.)
answer please

SEE MORE QUESTIONS

Recommended textbooks for you

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

Horngren's Cost Accounting: A Managerial Emphasis…

Accounting

ISBN:

9780134475585

Author:

Srikant M. Datar, Madhav V. Rajan

Publisher:

PEARSON

Intermediate Accounting

Accounting

ISBN:

9781259722660

Author:

J. David Spiceland, Mark W. Nelson, Wayne M Thomas

Publisher:

McGraw-Hill Education

Financial and Managerial Accounting

Accounting

ISBN:

9781259726705

Author:

John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS

$ 10 Accounts payable $ 10 unts 20 Accruals 15 vable ntories 20 Short-term debt rrent assets $ 50 Current liabilities $ 25 ixed assets 50 Long-term debt 30 Preferred stock (50,000 shares) Common equity Common stock (3,800,000 shares) $ 10