Problem 13-11 Finding the WACC You are given the following information for Huntington Power Company. Assume the company's tax rate is 23 percent. Debt: Common stock: Market: 32,000 5.1 percent coupon bonds outstanding, $2,000 par value, 22 years to maturity, selling for 106 percent of par; the bonds make semiannual payments. 480,000 shares outstanding, selling for $78 per share; the beta is 1.12. 8 percent market risk premium and 4.3 percent risk-free rate. What is the company's WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) WACC %

Problem 13-11 Finding the WACC You are given the following information for Huntington Power Company. Assume the company's tax rate is 23 percent. Debt: Common stock: Market: 32,000 5.1 percent coupon bonds outstanding, $2,000 par value, 22 years to maturity, selling for 106 percent of par; the bonds make semiannual payments. 480,000 shares outstanding, selling for $78 per share; the beta is 1.12. 8 percent market risk premium and 4.3 percent risk-free rate. What is the company's WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) WACC %

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)

10th Edition

ISBN:9781337902571

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter13: Capital Structure And Leverage

Section: Chapter Questions

Problem 11P: RECAPITALIZATION Currently, Forever flowers Inc. has a capital structure consisting of 25% debt and...

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RECAPITALIZATION Currently, Bloom Flowers Inc. has a capital structure consisting of 20% debt and 80% equity. Blooms debt currently has an 8% yield to maturity. The risk-free rate (rRF) is 5%, and the market risk premium (rM rRF) is 6%. Using the CAPM, Bloom estimates that its cost of equity is currently 12.5%. The company has a 40% tax rate. a. What is Blooms current WACC? b. What is the current beta on Blooms common stock? c. What would Blooms beta be if the company had no debt in its capital structure? (That is, what is Blooms unlevered beta, bU?) Blooms financial staff is considering changing its capital structure to 40% debt and 60% equity. If the company went ahead with the proposed change, the yield to maturity on the companys bonds would rise to 9 5%. The proposed change will have no effect on the companys tax rate. d. What would be the companys new cost of equity if it adopted the proposed change in capital structure? e. What would be the companys new WACC if it adopted the proposed change in capital structure? f. Based on your answer to Part e, would you advise Bloom to adopt the proposed change in capital structure? Explain.
Question 2 Given the following information for Huntington Power Co., find the WACC. Assume the company’s tax rate is 35 percent. Debt: 5,000 6 percent coupon bonds outstanding, GH¢ 1,000 par value, 25 years to maturity, selling for 105 percent of par; the bonds make annual payments. Common stock: 175,000 shares outstanding, selling for GH¢ 58 per share; the beta is 1.10. Market: 7 percent market risk premium and 5 percent risk-free rate.
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You are given the following information for Tara Ita Power Co. Assume the company’s tax rate is 22 percent. Debt: 5,000 6.6 percent coupon bonds outstanding, $1,000 par value, 20 years to maturity, selling for 109 percent of par; the bonds make semiannual payments. Common stock: 380,000 shares outstanding, selling for $56 per share; the beta is 1.12. Market: 5 percent market risk premium and 4.6 percent risk-free rate. What is the company's WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
12-5 Unbelievable Deals Inc. has the following capital structure and marginal tax rate of 35%. What is its WACC? Debt: 100,000 coupon bonds Eight-year maturity Face value of $1,000 Semi-annual coupon rate of 9% Bond price of $1,075 Common shares: Risk-free rate = 5% Expected market risk premium = 7% Beta = 1.2 Number of common shares = 3,000,000 Common share price = $30 Preferred shares: Par value = $150 Dividends = $12 Share price = $95 Number of preferred shares = 100,000 Select one: a. 7.14% b. 8.80% c. 9.01% d. 10.39% e. 11.56%
Bond Yield and After-Tax Cost of Debt A companys 6% coupon rate, semiannual payment, 1,000 par value bond that matures in 30 years sells at a price of 515.16. The companys federal-plus-state tax rate is 40%. What is the firms after-tax component cost of debt for purposes of calculating the WACC? (Hint: Base your answer on the nominal rate.)
RECAPITALIZATION Currently, Forever Flowers Inc. has a Capital structure consisting of 25% debt and 75% equity. Forever's debt currently has a 7% yield to maturity. The risk-free rate (rRF) is 6%and the market risk premium (rMrRF) is 7%. Using the CAPM, Forever estimates that its cost of equity is currently 14.5%. The company has a 40% tax rate. a. What is Forevers current WACC? b. What is the current beta on Forevers common stock? c What would Forever's beta be if the company had no debt in its capital structure? (That is, what is Forever's unlevered beta, buy? Forever's financial staff is considering changing its capital structure to 40% debt and 60% equity. If the company went ahead with the proposed change, the yield to maturity on the company's bonds would rise to 10.5%. The proposed change will have no effect on the companys tax rate d What would be the companys new cost of equity if it adopted the proposed change in capital structure? e. What would be the company's new WACC if it adopted the proposed change in capital structure? f. Based on your answer to part e, would you advise Forever to adopt the proposed change in capital structure? Explain.
You are given the following information for Cleen Power Co. Assume the company’s tax rate is 30 percent. Debt: 6,000 7.9 percent coupon bonds outstanding, $1,000 par value, 25 years to maturity, selling for 108 percent of par; the bonds make semiannual payments. Common stock: 510,000 shares outstanding, selling for $69 per share; the beta is 1.12. Market: 10 percent market risk premium and 5.9 percent risk-free rate. What is the company's WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) WACC %
Given the following information for Huntington Power Co., find the WACC. Assume the company's tax rate is 35 percent. Debt: 5,000 6 percent coupon bonds outstanding, $1,000 par value, 25 years to maturity, selling for 105 percent of par; the bonds make semiannual payments. Common Stock: 175,000 shares outstanding, selling for $58 per share; the beta is 1.10. Market: 7 percent market risk premium and 5 percent risk - free rate. Solve for WACC in Excel
The following data refers to Company Z: - Beta = 1.7 - Required return on debt (yield to maturity on a long term bond) = 3.1% - Tax rate = 21% - 30-year government bond = 2.3% - Market risk premium can be assumed to be 5% Estimate the cost of capital (WACC) for Company Z.
Given the following for Huntington Power Co., find the WACC. Assume the company's tax rate is 21 percent. Debt: 20,000 5.1 percent coupon bonds outstanding, $2000 par value, 20 years to maturity, selling for 105 percent of par, the bonds make semiannual payments. Common stock: 900,000 shares outstanding selling for $77 per share; the beta is 95. Market: 7 percent market risk premium and 3.5 percent risk-free rate.
Dont do handwritten please!! You are given the following information for Tara Ita Power Co. Assume the company’s tax rate is 25 percent. Debt: 9,000 6.4 percent coupon bonds outstanding, $1,000 par value, 20 years to maturity, selling for 107 percent of par; the bonds make semiannual payments. Common stock: 360,000 shares outstanding, selling for $54 per share; the beta is 1.10. Market: 11 percent market risk premium and 4.4 percent risk-free rate. What is the company's WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.).