Lingenburger Cheese Corporation has 7.5 million shares of common stock outstanding,275,000 shares of 4.7 percent preferred stock outstanding, and 160,000 bonds with asemiannual coupon rate of 5.6 percent outstanding, par value $2,000 each. Thecommon stock currently sells for $62 per share and has a beta of 1.10, the preferredstock has a par value of $100 and currently sells for $94 per share, and the bonds have18 years to maturity and sell for 108 percent of par. The market risk premium is 7.2percent, T-bills are yielding 3.4 percent, and the company's tax rate is 24 percent.a. What is the firm's market value capital structure? (Do not round intermediatecalculations 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 thefirm's typical project, what rate should the firm use to discount the project's cashflows? (Do not round intermediate calculations enter your answer as a percentrounded to 2 decimal places, e.g., 32.16.)a. Debta. Preferredstocka. Equityb. Discount rate7,705,000,000.00000.2071 X0.6926 X11.00%

Part (a): Market Value Capital StructureStep 1: Calculate Market Value of Common StockNumber of…

Answered: Lingenburger Cheese Corporation has 7.5…

Understanding Business

12th Edition

ISBN:9781259929434

Author:William Nickels

Publisher:William Nickels

Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment

Section: Chapter Questions

Problem 1CE

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