Phillips Equipment Inc. has 72,000 bonds outstanding that are each selling at $1,066 in the market. Each bond has 8 years left tomaturity, a $1000 face value and a coupon rate of 5%. Coupons are paid semiannually. The company also has 2.8 million shares ofcommon stock outstanding. The common stock has a beta of 1.05 and sells for $45 a share. The U.S. Treasury bill is yielding2.4 percent and the return on the market is 9 percent. The corporate tax rate is 35 percent.(a) Determine the firms market value weight for debt (Enter answers as a % to 2 decimal places) [(b) Determine the firms market value weight for equity (Enter answers as a % to 2 decimal places) [(c) What is the firms after tax cost of debt? (Enter answers as a % to 2 decimal places)[%(d) What is the firms cost of equity? (Enter answers as a % to 2 decimal places)(e) Using the information you have found in the earlier parts, determine the Cost of Capital for Phillips Equipment Inc. (Enter answers asa % to 2 decimal places)%%%

Market value of debt is calculated belowThe market value of equity is calculated below

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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Pearce's Cricket Farm issued a 15-year, 10% semiannual bond 4 years ago. The bond currently sels for 91% of its face value. The company's tax rate is 38% Suppose the book value of the debt issue is $60 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 11 years left to maturity. the book value of this issue is $35 million and the bonds sell for 51% 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 S sign in your response.) Total book value %24 What is the company's total market value of debt? (Enter the answer in dollars. Omit S sign in your response.) Total market value 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
A&P Inc., the grocery store chain, has 6 million shares of common stock outstanding which currently trade for $40 per share. The company also has 150,000 bonds each with a face value of $1,000 and annual coupons of $50. The bonds have 6 years to maturity and the next coupon is due in one year. The yield on the bonds is 5%. The company's beta is 1.05, the risk-free rate is 3%, and the expected return on the market is 8%. The tax rate is 35%. What is A&P's WACC? Express your answer in percentage form rounded to two decimal places. WACC = ?%
G4X Inc. is a publicly traded company with 25 million shares outstanding. The stock last traded at $10 a share and has a levered beta of 1.4. G4X Inc. has a $25 million bond outstanding on which it makes $1 million interest only payments each year with 5 years left to maturity. In addition, G4X Inc. has operating leases with required lease payments of $2 million a year for the next five years. Moody's rates the bond Baa which has a current default spread of 1.5%. The current marginal tax rate is 37%. The current risk-free rate is 2.0%, and the current equity risk premium is 6.0%. What is the current cost of capital for G4X Inc.?
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 face value and a coupon rate of 5%. Coupons are paid semiannually. The company also has 1.9 million shares of common stock outstanding. The common stock has a beta of 1.35 and sells for $44 a share. The U.S. Treasury bill is yielding 3.1 percent and the return on the market is 9.5 percent. The corporate tax rate is 35 percent. (a) Determine the firms market value weight for debt (Enter answers as a % to 2 decimal places) 8.41 % (b) Determine the firms market value weight for equity (Enter answers as a % to 2 decimal places) 91.59 % (c) What is the firms after tax cost of debt? (Enter answers as a % to 2 decimal places) 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 the Cost of Capital for Phillips Equipment Inc. (Enter…
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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

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