Lingenburger Cheese Corporation has 6.4 million shares of common stock outstanding, 225,000 shares of 3.7 percent preferred stock outstanding, par value of $100; and 110,000 bonds with a semiannual coupon rate of 5.4 percent outstanding, par value $1,000 each. The common stock currently sells for $72 per share and has a beta of 1.20, the preferred stock has a par value of $100 and currently sells for $84 per share, and the bonds have 18 years to maturity and sell for 108 percent of par. The market risk premium is 7.2 percent, T-bills are yielding 3.2 percent, and the company's tax rate is 24 percent. a. What is the firm's market value capital structure? Note: Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616. b. If the company is evaluating a new investment project that has the same risk as the firm's typical project, what rate should the firm use to discount the project's cash flows? Note: Do not round intermediate calculations enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a. Debt Preferred stock Equity b. Discount rate %
Lingenburger Cheese Corporation has 6.4 million shares of common stock outstanding, 225,000 shares of 3.7 percent preferred stock outstanding, par value of $100; and 110,000 bonds with a semiannual coupon rate of 5.4 percent outstanding, par value $1,000 each. The common stock currently sells for $72 per share and has a beta of 1.20, the preferred stock has a par value of $100 and currently sells for $84 per share, and the bonds have 18 years to maturity and sell for 108 percent of par. The market risk premium is 7.2 percent, T-bills are yielding 3.2 percent, and the company's tax rate is 24 percent. a. What is the firm's market value capital structure? Note: Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616. b. If the company is evaluating a new investment project that has the same risk as the firm's typical project, what rate should the firm use to discount the project's cash flows? Note: Do not round intermediate calculations enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a. Debt Preferred stock Equity b. Discount rate %
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Lingenburger Cheese Corporation has 6.4 million shares of common stock outstanding, 225,000 shares of 3.7 percent preferred
stock outstanding, par value of $100; and 110,000 bonds with a semiannual coupon rate of 5.4 percent outstanding, par value
$1,000 each. The common stock currently sells for $72 per share and has a beta of 1.20, the preferred stock has a par value of
$100 and currently sells for $84 per share, and the bonds have 18 years to maturity and sell for 108 percent of par. The market
risk premium is 7.2 percent, T-bills are yielding 3.2 percent, and the company's tax rate is 24 percent.
a. What is the firm's market value capital structure?
Note: Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.
b. If the company is evaluating a new investment project that has the same risk as the firm's typical project, what rate should the
firm use to discount the project's cash flows?
Note: Do not round intermediate calculations enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
a. Debt
Preferred stock
Equity
b. Discount rate
%
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