Given the following information for Huntington Power Co., find the WACC. Assume the company's tax rate is 35 percent. Debt: 5,000 6 percent coupon bonds outstanding, $1,000 par value, 25years to maturity, selling for 105 percent of par; the bonds make semiannual payments. Common Stock: 175,000 shares outstanding, selling for $58 per share; the beta is 1.10. Market: 7 percentmarket risk premium and 5 percent risk - free rate. Solve for WACC in Excel

The necessary rate of return on an organization's investments to meet the demands of its capital…

Answered: Given the following information for…

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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LUVFINANCE, Inc. is estimating its WACC. It is operating at its optimal capital structure. Its outstanding bonds have a 12 percent coupon, paid semiannually, a current maturity of 17 years, and sell for $1,162 (Hint: use the current bond price, $1,162, when computing market value of debt). It has 100,000 bonds outstanding. The firm can issue new 20-year maturity semiannual bonds at par but will incur flotation costs of $50 per bond (Hint: the coupon rate on the new bonds the YTM on existing bonds). The firm could sell, at par, $100 preferred stock that pays a 12 percent annual dividend that is currently selling for $120. The firm currently has 1,000,000 shares of preferred stock outstanding. Rollins' beta is 1.16, the risk-free rate is 3 percent, and the market risk premium is 6 percent. The common stock currently sells for $100 a share and there are 5,000,000 shares = outstanding. The firm's marginal tax rate is 40 percent. What is the WACC?
Calculate the WACC for Aya Ltd, using the following: 5,000 outstanding, 6% semi-annual coupon bonds, with 25 Debt. years to maturity and selling for 105; 175,000 shares outstanding, selling for $58.00 per share, Common Stock: with a beta of 1.10 Market: equity risk premium of 7% and 5% risk free rate. Tax Rate: 35%
You are given the following information on Parrothead Enterprises: Debt: 9,500 7 percent coupon bonds outstanding, with 25 years to maturity and a quoted price of 105.25. These bonds pay interest semiannually and have a par value of $1,000. Common stock: 250,000 shares of common stock selling for $65.00 per share. The stock has a beta of .95 and will pay a dividend of $3.20 next year. The dividend is expected to grow by 5 percent per year indefinitely. Preferred stock: 8,500 shares of 4.5 percent preferred stock selling at $94.50 per share. The par value is $100 per share. Market: , 11.5 percent expected return, risk - free rate of 3.85 percent, and a 25 percent tax rate. Calculate the company's WACC. Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g ., 32.16. WACC % You are given the following information on Parrothead Enterprises: Debt: Common stock: 9,500 7 percent coupon bonds outstanding, with 25 years to maturity and…
A firm is planning on issuing new bonds and equity. The semiannual bonds will have a coupon rate 9% with a maturity of 15 years. The preferred stock pays a dividend of $6. The common stock's current dividend is $2.50 with a growth rate of 7%. The flotation costs on bonds is 5%, 7% on preferred stocks and 10% on common stock. The tax rate is 35%. The current price of the bonds is $975 while the price of the common stock is $53.50 and $55 for the preferred stock. If the growth rate falls to 6%, what is change in the cost of external equity? external equity falls by 8.5% external equity falls by 7% external equity falls by 6.5% external equity falls by 6%
a. A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 10.2 percent. Interest payments are $51.00 and are paid semiannually. The bonds have a current market value of $1,123 and will mature in 10 years. The firm's marginal tax rate is 34 percet. b. A new common stock issue that paid a $1.79 dividend last year. The firm's dividends are expected to continue to grow at 7.3 percent per year, forever. The price of the firm's common stock is now $27.87. c. A preferred stock that sells for $132, pays a dividend of 8.7 percent, and has a $100 par value. d. A bond selling to yield 11.3 percent where the firm's tax rate is 34 percent. Question content area bottom Part 1 a. The after-tax cost of debt is_____%
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
Preston Corp. is estimating its WACC. Its target capital structure is 20 percent debt, 20 percent preferred stock, and 60 percent common equity. Its bonds have a 12 percent coupon, paid semiannually, a current maturity of 20 years, and sells for $1,100. The firm could sell, at par, $100 preferred stock which pays a 7.57 percent annual dividend, but flotation costs of 5 percent would be incurred. Preston's beta is 1.2, the risk-free rate is 3 percent, and the market risk premium is 5 percent. The firm's marginal tax rate is 40 percent. What is Preston's WACC?
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)
A firm can issue a 15-year, $1,000 par value bond with a 10% coupon rate, paying interest semiannually, at a price of $862.35. Their marginal tax rate is 40%. A dividend of $1.25 was just paid on the firm's common stock, and the firm's estimated growth rate is 8%. It can issue new common stock at $25.00 with a 20% floatation cost. The Risk-Free Return is 6%, the Market Return is 12%, and the firm's beta is 1.2. A) Calculate the firm's Cost of Debt, after Tax. B) Calculate the firm's Cost of Retained Earnings using the CAPM. C) Calculate the firm's Cost of new Common Stock. D) A firm has the following component costs of capital: Cost of Debt (after-tax): 10.5% Cost of Retained Earnings: 15.0% It's target capital structure is: Debt 40% Retained Earnings: 60% Estimate the firm's Weighted Average Cost of Capital (WACC)
1. Sleeping Time has 8,000 bonds outstanding that are selling at 90% of par value. The bonds are issued with 8% annual coupon that matures in 15 years. The company also has 400,000 shares of common stock outstanding. The stock has a beta of 1.5 and sells for $30 a share. The U.S. Treasury bill is yielding 3% and the average return on market is 8%. Sleeping Time falls under 40% tax bracket. Required: What is Sleeping Time's weighted average cost of capital?
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%?
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…

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