Lingenburger Cheese Corporation has 72 million shares of common stock outstanding, 260,000 shares of 4.4 percent preferred stock outstanding, par value of $100; and 145,000 bonds with a semiannual coupon rate of 5.5 percent outstanding, par value $2,000 each. The common stock currently sells for $65 per share and has a beta of 115, the preferred stock has a par value of $100 and currently sells for $91 per share, and the bonds have 15 years to maturity and sell for 105 percent of par. The market risk premium is 7.5 percent, T-bills are yielding 3.1 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 enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a. Debt Preferred stock Equity b. Discount rate 8.55 %

Lingenburger Cheese Corporation has 72 million shares of common stock outstanding, 260,000 shares of 4.4 percent preferred stock outstanding, par value of $100; and 145,000 bonds with a semiannual coupon rate of 5.5 percent outstanding, par value $2,000 each. The common stock currently sells for $65 per share and has a beta of 115, the preferred stock has a par value of $100 and currently sells for $91 per share, and the bonds have 15 years to maturity and sell for 105 percent of par. The market risk premium is 7.5 percent, T-bills are yielding 3.1 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 enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a. Debt Preferred stock Equity b. Discount rate 8.55 %

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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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
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…
Dineage Corporation has 5 million shares of common stock outstanding. The current share price is $84, and the book value per share is $7. The company also has two bond issues outstanding. The first bond issue has a face value of $60 million, has a 7 percent coupon, and sells for 94 percent of par. The second issue has a face value of $35 million, has a 8 percent coupon, and sells for 107 percent of par. The first issue matures in 22 years, the second in 4 years. The most recent dividend was $5.6 and the dividend growth rate is 8 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 35 percent. What is the company's WACC?
Lingenburger Cheese Corporation has 6.3 million shares of common stock outstanding, 220,000 shares of 3.6 percent preferred stock outstanding, par value of $100; and 105,000 bonds with a semiannual coupon rate of 5.3 percent outstanding, par value $1,000 each. The common stock currently sells for $73 per share and has a beta of 115, the preferred stock has a par value of $100 and currently sells for $83 per share, and the bonds have 17 years to maturity and sell for 107 percent of par. The market risk premium is 7.1 percent, T-bills are yielding 3.1 percent, and the company's tax rate is 23 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…
Lingenburger Cheese Corporation has 6.5 million shares of common stock outstanding, 230,000 shares of 3.8 percent preferred stock outstanding, par value of $100; and 115,000 bonds with a semiannual coupon rate of 5.5 percent outstanding, par value $1,000 each. The common stock currently sells for $71 per share and has a beta of 1.05, the preferred stock has a par value of $100 and currently sells for $85 per share, and the bonds have 19 years to maturity and sell for 109 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 25 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…
Florida Manufacturing has 7.3 million shares of common stock outstanding. The current share price is $43, and the book value per share is $3. Filer Manufacturing also has two bond issues outstanding. The first bond issue has a face value of $68.0 million and a coupon rate of 6.0 percent and sells for 109.3 percent of par. The second issue has a face value of $58.0 million and a coupon rate of 6.5 percent and sells for 106.9 percent of par. The first issue matures in 7 years, the second in 28 years. Suppose the company’s stock has a beta of 1.4. The risk-free rate is 2.1 percent, and the market risk premium is 6.0 percent. Assume that the overall cost of debt is the weighted average implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 34 percent. What is the company’s WACC? (Do not round intermediate calculations and round your answer to 2 decimal places. (e.g., 32.16))
Dani Corporation has 5 million shares of common stock outstanding. The current share price is $65, and the book value per share is $4. The company also has two bond issues outstanding. The first bond issue has a face value of $50 million, has a coupon rate of 5 percent, and sells for 90 percent of par. The second issue has a face value of $35 million, has a coupon rate of 4 percent, and sells for 102 percent of par. The first issue matures in 20 years, the second in 5 years. Both bonds make semiannual coupon payments. a. What are the company's capital structure weights on a book value basis? Note: Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616. b. What are the company's capital structure weights on a market value basis? Note: Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616. c. Which are more relevant, the book or market value weights? a. Equity/Value Debt/Value b. Equity/Value Debt/Value c.…
Titan Mining Corporation has 14 million shares of common stock outstanding, 900,000 shares of 9 percent preferred stock outstanding and 220,000 ten percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $42 per share and has a beta of 1.15, the preferred stock currently sells for $80 per share, and the bonds have 17 years to maturity and sell for 91 percent of par. The market risk premium is 11.5 percent, T-bills are yielding 7.5 percent, and the firm's tax rate is 32 percent. What discount rate should the firm apply to a new project's cash flows if the project has the same risk as the firm's typical project?
Masterson, Inc., has 8 million shares of common stock outstanding. The current share price is $74, and the book value per share is $7. The company also has two bond issues outstanding. The first bond issue has a face value of $95 million, has a coupon rate of 7 percent, and sells for 97 percent of par. The second issue has a face value of $80 million, has a coupon rate of 6 percent, and sells for 109 percent of par. The first issue matures in 23 years, the second in 6 years. Both bonds make semiannual coupon payments. a. What are the company's capital structure weights on a book value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.) b. What are the company’s capital structure weights on a market value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.) c. Which are more relevant, the book or market value weights?
Lingenburger Cheese Corporation has 7.4 million shares of common stock outstanding, 270,000 shares of 4.6 percent preferred stock outstanding, 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 currently sells 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 firm use to discount the project's cash flows? Note: Do not round intermediate calculations…
Titan Mining Corporation has 7.6 million shares of common stock outstanding, 280,000 shares of 4.5 percent preferred stock outstanding, and 165,000 bonds with a semiannual coupon rate of 5.9 percent outstanding, par value $2,000 each. The common stock currently sells for $61 per share and has a beta of 1.15, the preferred stock has a par value of $100 and currently sells for $95 per share, and the bonds have 19 years to maturity and sell for 109 percent of par. The market risk premium is 7.1 percent, T-bills are yielding 3.5 percent, and the company’s tax rate is 25 percent. a. What is the firm’s debt, preferred stock and equity? (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? (Do not round intermediate calculations enter your answer as a percent…
Dani Corporation has 7 million shares of common stock outstanding. The current share price is $79, and the book value per share is $10. The company also has two bond Issues outstanding. The first bond issue has a face value of $120 million, a coupon rate of 4 percent, and sells for 92 percent of par. The second issue has a face value of $105 million, a coupon rate of 3 percent, and sells for 104 percent of par. The first issue matures In 22 years, the second in 7 years. Suppose the most recent dividend was $4.75 and the dividend growth rate is 5.2 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. The tax rate Iis 25 percent. What is the company's WACC? (Do not round Intermedlate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) WACC %

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