Hollydale's is a clothing store in East Park. It paid an annual dividend of $1.50 last year to its.2shareholders and plans to increase the dividend annually at 5.0%. It has 590,000 sharesoutstanding. The shares currently sell for $17.83 per share. Hollydale's has 14,000 semiannualbonds outstanding with a coupon rate of 10%, a maturity of 20 years, and a par valueof $1,000. The bonds are currently selling for $958.53 per bond. What is the adjusted WACC* ?for Hollydale's if the corporate tax rate is 15%

The weighted average cost of capital (WACC) is the cost at which a firm raises capital from the…

Answered: Hollydale's is a clothing store in East…

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

The Smith Company has 10,000 bonds outstanding. The bonds are selling at 102% of face value, have a 8% coupon rate, pay interest annually, mature in 10 years, and have a face value of $1,000. There are 500,000 shares of 9% preferred stock outstanding with a current market price of $91 a share and a par value of $100. In addition, there are 1.25 million shares of common stock outstanding with a market price of $64 a share and a beta of .95. The most recent dividend paid by the company on the common stock was of $1.10 and it expects to increase those dividends by 3% annually forever. The firm's marginal tax rate is 35%. The overall stock market is yielding 12% and the Treasury bill rate is 3.5%. What is the cost of equity based on the dividend growth model?
Currently, the number of outstanding shares issued by Ponggol Limited (“Ponggol”) is 25,000,000 and it trades at $2.50 per share. Ponggol operates several high-tech indoor vegetable farms in Singapore. Three years ago, Ponggol issued 80,000 bonds (which currently trades at $1,080) based on the following terms:• Coupon = 6% (paid semi-annually)• Maturity = 10 years• Par value = $1,000 The debt/equity ratio of the high-tech agriculture industry is 0.5. By applying Modigliani and Miller theory, hypothesize what Ponggol should do to maximize the value of the firm. State your assumptions. No computations are required.
Kelsey Drums, Inc., is a well-established supplier of fine percussion instruments to orchestras all over the United States. The company's class A common stock has paid a dividend of $4.11 per share per year for the last 19 years. Management expects to continue to pay at that amount for the foreseeable future. Kim Arnold purchased 100 shares of Kelsey class A common 8 years ago at a time when the required rate of return for the stock was 7.6%. She wants to sell her shares today. The current required rate of return for the stock is 2.60%. How much total capital gain or loss will Kim have on her shares?
True or False. A company borrows additional financing and as a result their weight of debt increases (holding dollars of equity constant). Because the weight of debt increases, the company's WACC will always decrease. True O False
At a market price of $26 per share, The Seattle, Inc. has 20,000 shares of common stock outstanding. This stock was first offered at a price of $19 per share. In addition, the company has a bond issue with a total face value of $300,000 that is selling for 97 percent of its face value. The cost of equity is 10%, while the cost of debt after taxes is 5%. The company has a beta of 1.2 and a 35 percent tax rate. What is the weighted average cost of capital in The Seattle, Inc.
Calculate the weighted average cost of capital for the following Dunkie company (WACC). The Dunkie company's bond is currently selling for 102% of par. The bond is a semi-annual, 20-year bond issued 7 years ago with a face value of $1000.00 with a coupon of 8%. There were 95,000 bonds issued. The company's corporate tax rate is 32%. The Dunkie company has issued both preferred and common stock. The preferred stock pays $3.35 per share and is selling for $97.00. There are 100,000 shares of preferred stock. The company has a beta of .95. You've calculated the return of the market to be 9.5% and the market risk premium is 5.75%. The Dunkie company stock is selling for $15.75 and there are 5,000,000 shares outstanding. What is the weighted average cost of capital for the Dunkie company?
Gentrix Inc. has two major sources of financing—common stock and long-term debt. They currently have 1,000,000 shares of stock outstanding, which are trading at a price of $20 per share. Two years ago, they issued $5,000,000 of 20-year debt to the general public at par value. The debt pays an annual coupon of 7%. The coupon is paid annually. Given their current capital structure, Gentrix has estimated that their cost of equity is 15%. Gentrix faces a marginal tax rate of 40%. It has been exactly two years since Gentrix issued their debt, and interest rates have increased. If the long-term debt is currently having a yield to maturity of 9%, what is the current value of the outstanding debt? Is it selling at a premium or discount to par value? (Remember that coupon payments of 7% are made annually rather than the semiannually.) Based on Gentrix’s current capital structure, what is the firm’s weighted average cost of capital? Assume that Gentrix currently has a capital structure that is…
SantiZerLtd currently has $200 million of market value debt outstanding. The 9 per cent coupon bonds (semi-annual pay) have a maturity of 15 years, a face value of $1000 and are currently priced at $1,024.87 per bond. The company also has an issue of 2 million preference shares outstanding with a market price of $20. The preference shares offer an annual dividend of $1.20. Santi Zer also has 14 million ordinary shares outstanding with a price of $20.00 per share. The company is expected to pay a $2.20 ordinary dividend 1 year from today, and that dividend is expected to increase by 7 per cent per year forever. If the corporate tax rate is 40 per cent, then what is the company’s weighted average cost of capital?
Running Shoes, Inc. has 2 million shares of stock outstanding. The stock currently sells for $15 per share. The firm's debt is publicly traded and has five years until maturity. The current value of the firm's bonds is $14.1016 million with a yield to maturity of 8%. The risk free rate is 2% and the market risk premium is 9%. You've estimated that the firm has a beta of 1.7. The corporate tax rate is 30%. Hint: find the market value of the debt. What percentage of Running Shoes, Inc. is financed with debt? (Answer in decimal form)
Kelsey Drums, Inc., is a well-established supplier of fine percussion instruments to orchestras all over the United States. The company's class A common stock has paid a dividend of $4.84 per share per year for the last 14 years. Management expects to continue to pay at that amount for the foreseeable future. Kim Arnold purchased 300 shares of Kelsey class A common 5 years ago at a time when the required rate of return for the stock was 8.3%. She wants to sell her shares today. The current required rate of return for the stock is 5.30%. How much total capital gain or loss will Kim have on her shares? 1. The value of the stock when Kim purchased it was $____per share. (Round to the nearest cent.) 2.The value of the stock if Kim sells her shares today is $_______ per share. (Round to the nearest cent.) 3. The total capital gain (or loss) Kim will have on her shares is $_______. (Round to the nearest dollar. Enter a positive number for a capital gain and a negative…

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