Phillips Equipment Inc. has 72,000 bonds outstanding that are each selling at$1,066 in the market. Each bond has 8 years left to maturity, a $1000 facevalue and a coupon rate of 5%. Coupons are paid semiannually. The companyalso has 1.9 million shares of common stock outstanding. The common stockhas a beta of 1.35 and sells for $44 a share. The U.S. Treasury bill is yielding3.1 percent and the return on the market is 9.5 percent. The corporate tax rateis 35 percent.(a) Determine the firms market value weight for debt (Enter answers as a % to 2decimal places)8.41 %(b) Determine the firms market value weight for equity (Enter answers as a % to2 decimal places) 91.59 %(c) What is the firms after tax cost of debt? (Enter answers as a % to 2 decimalplaces) 2.81%(d) What is the firms cost of equity? (Enter answers as a % to 2 decimal places)11.74 %(e) Using the information you have found in the earlier parts, determine theCost of Capital for Phillips Equipment Inc. (Enter answers as a % to 2 decimalplaces)%

The cost of capital refers to the return that the company provides to all its stakeholders for their…

Answered: Phillips Equipment Inc. has 72,000…

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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Suppose Westerfield Co. has the following financial information: Debt: 900, 000 bonds outstanding with a face value of $1,000. The bonds currently trade at 85% of par and have 12 years to maturity. The coupon rate equals 7%, and the bonds make semiannual interest payments. Preferred stock: 600,000 shares of preferred stock outstanding; currently trading for $108 per share, paying a dividend of $9 annually. Common stock: 25,000,000 shares of common stock outstanding; currently trading for $185 per share. Beta equals 1.22. Market and firm information: The expected return on the market is 9%, the risk - free rate is 5%, and the tax rate is 21 %. Calculate the weight of debt in the capital structure. (Enter percentages as decimals and round to 4 decimals)
Charter Corp. has issued 1,554 debentures with a total principal value of $1,554,000. The bonds have a coupon interest rate of 9%. a. What dollar amount of interest per bond can an investor expect to receive each year from Charter? b. What is Charter's total interest expense per year associated with this bond issue? c. Assuming that Charter is in a 39% corporate tax bracket, what is the company's net after-tax interest cost associated with this bond issue?
A company has bonds which currently see for 82% of par. They pay a 6% coupon semi - annually, and have 12 years left to maturity. What is the cost of debt?
1. Sleeping Time has 8,000 bonds outstanding that are selling at 90% of par value. The bonds are issued with 8% annual coupon that matures in 15 years. The company also has 400,000 shares of common stock outstanding. The stock has a beta of 1.5 and sells for $30 a share. The U.S. Treasury bill is yielding 3% and the average return on market is 8%. Sleeping Time falls under 40% tax bracket. Required: What is Sleeping Time's weighted average cost of capital?
1. Tel Corporation issued bonds at 2,500 par value. Given the interest rate of 8% in the market, how much interest is paid every year for 20 years where their bonds were sold at P4,000? 2. How much is the return in a one-year treasury bill at P2,550 with an annual interest rate of 2%?
The 9 percent annual coupon bonds of the Jamesway Co. are selling for $1,008.20. The bonds have a face value of $1,000 and mature in 11 years. What is the before-tax cost of debt?
The numbers provided are in thousands of dollars. All securities are selling at par. Treasury bill $ 90 Time deposits $1,100 Treasury notes $ 55 Fed funds sold $ 230 Treasury bonds $ 176 Demand deposits $2,500 Loans $4,679 Equity $1,170 Notes: All Treasury bills have six months until maturity. One-year Treasury notes are priced at par and have a coupon of 7 percent paid semiannually. Treasury bonds have an average duration of 4.5 years and the loan portfolio has a duration of 7 years. Time deposits have a 1-year duration and the Fed funds duration is .003 years. Question: If relative change in all market interest rates is a decrease of 1%, calculate the impact on…
Jones Cricket Institute issued a 30 year, 8 percent semi-annual bond 3 year ago. The bond currently sells for 93 percent of its face value. The Company’s tax rate is 35%. suppose the book value of the debt issues is $60 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 10 years to mature. The book value of this issue is $35 million and the bond sell for 57 percent of par. What is the company’s total book value of debt? The total market value? What is your best estimate of the after-tax cost of debt now?
BankMart Inc. recently issued bonds that mature in 11 years. They have a par value of $1,000 and an annual coupon of 6%. The current market interest rate is 8%. What is the bond's value?
Pearce's Cricket Farm issued a 10-year, 8% semiannual bond 3 years ago. The bond currently sells for 96% of its face value. The company's tax rate is 35%. Suppose the book value of the debt issue is $50 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 10 years left to maturity; the book value of this issue is $30 million and the bonds sell for 55% of par. Assume the par value of the bond is $1,000. What is the company's total book value of debt? (Enter the answer in dollars. Omit $ sign in your response.) Total book value $ 8000000 What is the company's total market value of debt? (Enter the answer in dollars. Omit $ sign in your response.) Total market value $ 6450000 What is your best estimate of the after-tax cost of debt? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places.) Cost of debt
The Textile Co. has an annual bond outstanding that matures in 8 years and carries a 7 percent coupon. The bond has a market value of $1,030.44. The company has a corporate tax rate of 35 percent. What is the aftertax cost of debt? 2.28 percent 4.23 percent 5.76 percent 6.50 percent
One year ago, a company issued 15-year, noncallable, 7.75% annual coupon bonds at their par value of $1,000. Today, the market interest rate on these bonds is 6.75%. What is the current price of the bonds?

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