Problem 13-9 Calculating the WACCDani Corporation has 7 million shares of common stock outstanding. The current shareprice is $79, and the book value per share is $10. The company also has two bondissues outstanding. The first bond issue has a face value of $120 million, a coupon rateof 4 percent, and sells for 92 percent of par. The second issue has a face value of $105million, a coupon rate of 3 percent, and sells for 104 percent of par. The first issuematures in 22 years, the second in 7 years.Suppose the most recent dividend was $4.75 and the dividend growth rate is 5.2percent. Assume that the overall cost of debt is the weighted average of that implied bythe two outstanding debt issues. The tax rate is 25 percent. What is the company'sWACC? (Do not round intermediate calculations and enter your answer as a percentrounded to 2 decimal places, e.g., 32.16.)WACC%< Prev6 of 11Next >

Calculating Dani Corporation's WACCHere's how to calculate Dani Corporation's WACC:1. Market Value…

Answered: Problem 13-9 Calculating the WACC Dani…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter16: Financial Planning And Control

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Problem 13PROB

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8 The Flying Dove has 1,600 bonds outstanding with a $1,000 par value, a coupon rate of 5.5 percent, 12 years to maturity, annual interest payments, and a market price equal to par. The firm also has 52,000 shares of common stock outstanding at a price per share of $43 and a beta of 1.3. The risk-free rate is 3 percent, the market risk premium is 7 percent, and the tax rate is 35 percent. What is the company's WACC?
Winston Watch’s stock price is $75 per share. Winston has $10 billion in total assets. Its balance sheet shows $1 billion in current liabilities, $3 billion in long-term debt, and $6 billion in common equity. It has 800 million shares of common stock outstanding. What is Winston’s market/book ratio?
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Question 5/2 Treasure Island Ltd. currently has the following capital structure: Debt: $3,500,000 par value of outstanding non-callable bond that pays annually 10% coupon rate with an annual before-tax yield to maturity of 8.5%. The bond issue has face value of $1,000/bond and will mature in 20 years. Ordinary shares: 70,000 outstanding ordinary shares. The firm plans to pay a $4.50 dividend per share in the next financial year. The firm is maintaining 5% annual growth rate in dividend, which is expected to continue indefinitely. Preferred shares: 45 000 outstanding preferred shares with face value of $100, paying fixed dividend rate of 13%. Company tax rate is 30%. Required: Complete the following tasks: A) Calculate the current market value (rounded off to the nearest whole number) and capital structure of the firm (rounded off to two decimal places). Identify the total…
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9 Phillips Equipment Inc. has 72,000 bonds outstanding that are each selling at $1,042 in the market. Each bond has 10 years left to maturity, a $1000 face value and a coupon rate of 7%. Coupons are paid semiannually. The company also has 2.2 million shares of common stock outstanding. The common stock has a beta of 1.3 and sells for $37 a share. The U.S. Treasury bill is yielding 2.8 percent and the return on the market is 10 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…
Book Value versus Market Value Dinklage Corp. has 8 million shares of common stock outstanding. The current share price is $73, 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 &85 million, a 7 percent coupon, and sells for 97 percent of par. The second issue has a face value of $50 million, an 8 percent coupon, and sells for 108 percent of par. The first issue matures in 21 years, the second in 6 years. What are the company’s capital structure weights on a book value basis? What are the company’s capital structure weights on a market value basis? Which are more relevant, the book or market value weights? Why?
Question TwoThe equity beta of Fence Co is 0·9 and the company has issued 10 million ordinary shares. The market value of each ordinary share is K7·50. The company is also financed by 7% bonds with a nominal value of K100 per bond, which will be redeemed in seven years’ time at nominal value. The bonds have a total nominal value of K14 million. Interest on the bonds has just been paid and the current market value of each bond is K107·14.Fence Co plans to invest in a project which is different to its existing business operations and has identified a company in the same business area as the project, Hex Co. The equity beta of Hex Co is 1·2 and the company has an equity market value of K54 million. The market value of the debt of Hex Co is K12 million. The risk-free rate of return is 4% per year and the average return on the stock market is 11% per year. Both companies pay corporation tax at a rate of 20% per year.Required:(a) Calculate the current weighted average cost of capital of…
Q No.2 A company has issued 10 year bond a year ago at par value with a coupon rate of 9%, paid annually. Today the bond is selling at 1150. Firm is in the tax bracket of 40%. Company has preferred stock on which dividend is fixed $ 4 and market price of preferred stock is $ 45. Company issued common stock, dividend currently paid $2 which is expected to grow at a rate of 4% and stock is selling at $ 25. If company is planning to invest in a project at a ratio of 40:20:40. What should be weighted average cost of capital of this project?

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