Lingenburger Cheese Corporation has 7.4 million shares of common stock outstanding, 270,000 shares of 4.6 percent preferred stockoutstanding, par value of $100; and 155,000 bonds with a semiannual coupon rate of 5.5 percent outstanding, par value $2,000 each.The common stock currently sells for $63 per share and has a beta of 1.05, the preferred stock has a par value of $100 and currentlysells for $93 per share, and the bonds have 17 years to maturity and sell for 107 percent of par. The market risk premium is 7.3 percent,T-bills are yielding 3.3 percent, and the company's tax rate is 23 percent.a. What are the firm's market value capital structure weights?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 firmuse 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. DebtPreferred stockEquityb. Discount rate%

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Answered: Lingenburger Cheese Corporation has 7.4…

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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Western Electric has 34,000 shares of common stock outstanding at a price per share of $83 and a rate of return of 12.80 percent. The firm has 7,500 shares of 8.20 percent preferred stock outstanding at a price of $97.00 per share. The preferred stock has a par value of $100. The outstanding debt has a total face value of $416,000 and currently sells for 113 percent of face. The yield to maturity on the debt is 8.20 percent. What is the firm's weighted average cost of capital if the tax rate is 40 percent?
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es Lingenburger Cheese Corporation has 6.6 million shares of common stock outstanding, 235,000 shares of 3.9 percent preferred stock outstanding, par value of $100; and 120,000 bonds with a semiannual coupon rate of 5.6 percent outstanding, par value $1,000 each. The common stock currently sells for $70 per share and has a beta of 1.10, the preferred stock has a par value of $100 and currently sells for $86 per share, and the bonds have 15 years to maturity and sell for 104 percent of par. The market risk premium is 7.4 percent, T-bills are yielding 3.4 percent, and the company's tax rate is 21 percent. a. What are the firm's market value capital structure weights? 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…
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