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…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 15P

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Phillips Equipment Inc. has 70,000 bonds outstanding that are each selling at $1,068 in the market. Each bond has 6 years left to maturity, a $1000 face value and a coupon rate of 7%. Coupons are paid semiannually. The company also has 2.4 million shares of common stock outstanding. The common stock has a beta of 0.9 and sells for $36 a share. The U.S. Treasury bill is yielding 2.3 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 as a % to 2 decimal…
Big Door Company has 8.7 million shares outstanding, which are currently trading for about $13 per share and have a levered equity beta of 1.2. Big Door has 19,900 outstanding bonds, with a 4% coupon rate, payable semi-annually and due in 10 years. The bonds are rated BBB. Currently the credit spread for BBB is 178 basis points over equivalent-maturity Government of Canada debt. The current yield on 10-year Canada bonds is 5%, compounded semi-annually. The risk-free interest rate is 2%, and the market risk premium is 6.6%. The company has a 35% tax rate. (Do not round intermediate calculations.) a. Calculate Big Door's WACC. (Round your answer to 2 decimal places.) WACC b. Calculate Big Door's unlevered beta, using the following formula: (Round your answer to 2 decimal places.) Pleveret Pdebtx (1–Tc)×D/E BU 1+(1–Tc)×D/E es Unlevered beta c. If Big Door was 50% debt-financed, what would be its WACC? Assume that the beta of its debt is unchanged by the capital structure change. (Round…
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Firm Z has issued 1,000,000 bonds. Each bond is priced at $929 and has a face value of $1000. It pays annual coupon payments and has a coupon rate of 3%. The bonds will mature in 20 years. Stock price of Firm Z is $10, and there are 50 million shares outstanding. There are 2 million shares of preferred stock, which offers $2 dividend and is priced at $40. Equity beta of Firm Z is 1.5 and current market portfolio yields 8% and the risk free rate is 2%. Corporate tax rate is 30%. What is the following: 1. costs of debt, 2.equity, 3. preferred stock and WACC?
Firm Z has issued 1,000,000 bonds. Each bond is priced at $929 and has a face value of $1000. It pays annual coupon payments and has a coupon rate of 3%. The bonds will mature in 20 years. Stock price of Firm Z is $10, and there are 50 million shares outstanding. There are 2 million shares of preferred stock, which offers $2 dividend and is priced at $40. Equity beta of Firm Z is 1.5 and current market portffolio yields 8% and the risk free rate is 2%. Corproate tax rate is 30%. Find the costs of debt, equity, preferred stock and WACC. Show work using excel formulas
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Hudson Corp. sells $300,000 of bonds to private investors. The bonds have a 7% coupon rate and interest is paid semiannually. The bonds were sold to yield 10%. What periodic interest payment does Hudson make to its investors?
A firm has 20 $1,000 face value bonds outstanding. The bonds pay annual coupons and have a coupon rate of 5%. The bonds are currently trading at a price of 1,015 and have 5 years until maturity. The firm also has 2,600 shares of common stock outstanding that trade for $17 per share. The market risk premium is 9%, the risk-free rate is 2.25% and the firm’s beta is 1.6. The corporate tax rate is 21%. What is the firm’s weighted average cost of capital?
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?
Banana Corporation has 4 million ordinary shares outstanding that are currently priced at $8.50 each and have a beta of 1.4. The company has 750,000 preference shares trading at $6 each. Eight years ago the company issued bonds with a total face value of $5 million. One bond has a face value of $250,000. The bonds have a coupon rate of 4% p.a. and coupons are paid annually. The bonds mature in six years from today. The bonds currently yield 2.5% p.a., the return on the stock market is 8% p.a., the risk-free return is 2.5% p.a., and the company tax rate is 30%. What proportion of the firm's capital structure is preference shares?
ADL has 4 million ordinary shares outstanding that are currently priced at $7.50 each and have a beta of 1.4. Four years ago, the company issued bonds with a total face value of $11 million. One bond has a face value of $250,000. The bonds have a coupon rate of 5% p.a., and coupons are paid semi-annually. The bonds mature eleven years from today. The bonds currently yield 6% p.a. The company has 650,000 preference shares trading at $8 each. The return on the stock market is 9% p.a., the risk-free return is 4% p.a., and the company tax rate is 30%. The market yield on the ADL preference shares is 8%. What proportion of the firm's capital structure is preference shares?

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