Problem 14-12 Book Value versus Market Value [LO3] Dani Corporation has 6 million shares of common stock outstanding. The current share price is $66, and the book value per share is $5. The company also has two bond issues outstanding. The first bond issue has a face value of $55 million, a coupon rate of 6 percent, and sells for 91 percent of par. The second issue has a face value of $40 million, a coupon rate of 5 percent, and sells for 103 percent of par. The first issue matures in 21 years, the second in 6 years. Both bonds make semiannual coupon payments. a. What are the company's capital structure weights on a book value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.) b. What are the company's capital structure weights on a market value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.)

Problem 14-12 Book Value versus Market Value [LO3] Dani Corporation has 6 million shares of common stock outstanding. The current share price is $66, and the book value per share is $5. The company also has two bond issues outstanding. The first bond issue has a face value of $55 million, a coupon rate of 6 percent, and sells for 91 percent of par. The second issue has a face value of $40 million, a coupon rate of 5 percent, and sells for 103 percent of par. The first issue matures in 21 years, the second in 6 years. Both bonds make semiannual coupon payments. a. What are the company's capital structure weights on a book value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.) b. What are the company's capital structure weights on a market value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.)

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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Problem 16-13 MM proposition 2 The common stock and debt of Northern Sludge are valued at $52 million and $21 million, respectively. Investors currently require a 17% return on the common stock and an 9% return on the debt. If Northern Sludge issues an additional $5 million of common stock and uses this money to retire debt, what is the new expected return on the stock? Assume that the change in capital structure does not affect the risk of the debt and that there are no taxes. Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Expected stock return %
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Problem 11-10 Spreadsheet Problem: WACC (LG11-3) Johnny Cake Limited has 8 million shares of stock outstanding selling at $18 per share and an issue of $40 million in 8 percent annual coupon bonds with a maturity of 17 years, selling at 92.0 percent of par. Assume Johnny Cake's weighted-average tax rate is 21 percent, it cannot make use of interest tax shields for the foreseeable future, its next dividend is expected to be $3 per share, and all future dividends are expected to grow at 4 percent per year, indefinitely. What is its WACC? Note: Do not round intermediate calculations. Round your final answer to 2 decimal places. WACC
Problem 18-4 WACC If Smolinski, Incorporated, were an all-equity company, it would have a beta of 1.20. The company has a target debt-equity ratio of 70. The expected return on the market portfolio is 10 percent and Treasury bills currently yield 3.5 percent. The company has one bond issue outstanding that matures in 30 years, a par value of $1,000, and a coupon rate of 6.4 percent. The bond currently sells for $1,070. The corporate tax rate is 22 percent. a. What is the company's cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the company's cost of equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the company's weighted average cost of capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Cost of debt b. Cost of equity c. WACC % %…
Problem 13-9 Preferred stock In 2021, Beta Corporation earned gross profits of $820,000. a. Suppose that Beta was financed by a combination of common stock and $1.06 million of debt. The interest rate on the debt was 11%, and the corporate tax rate in 2021 was 21%. How much profit was available for common stockholders after payment of interest and corporate taxes? b. Now suppose that instead of issuing debt, Beta was financed by a combination of common stock and $1.06 million of preferred stock. The dividend yield on the preferred was 9%, and the corporate tax rate was still 21%. Recalculate the profit available for common stockholders after payment of preferred dividends and corporate taxes. Note: Do not round intermediate calculations. Enter your answers in dollars not millions and round your answers to the nearest whole dollar amount. a. Profit available to common stockholders b. Profit available to common stockholders
3 02:29:29 The stock of Payout Corp. will go ex-dividend tomorrow. The dividend will be $1 per share, and there are 50,000 shares of stock outstanding. The market-value balance sheet for Payout is shown below. Assets Liabilities and Equity Cash Fixed assets $300,000 950,000 Equity $1,250,000 So far, price of the share today is $25 per share and it will sell at $24 per share for tomorrow. Now suppose that Payout announces its intention to repurchase $50,000 worth of stock instead of paying out the dividend. a. What effect will the repurchase have on an investor who currently holds 50 shares and sells 2 of those shares back to the company in the repurchase? Total value of the position b. What effect will the initial cash dividend payment have on the same investor? Total value of the position $
5 Skipped eBook Hint Print Dani Corporation has 6 million shares of common stock outstanding. The current share price is $78, and the book value per share is $9. The company also has two bond issues outstanding. The first bond issue has a face value of $115 million, a coupon rate of 7 percent, and sells for 93 percent of par. The second issue has a face value of $100 million, a coupon rate of 6 percent, and sells for 105 percent of par. The first issue matures in 21 years, the second in 8 years. Suppose the most recent dividend was $4.70 and the dividend growth rate is 5.3 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. The tax rate is 24 percent. 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 References %
QUESTION 5 The 10% convertible debt of Millfield plc is convertible in four years' time at a rate of 20 shares per bond, or redeemable in four years' time at a par value of £100. The current share price of Millfield is £4.00 and this is expected to grow at 8% per year. If Millfield plc has a cost of debt of 12%, what is the current ex interest market value of its convertible debt? (Ignore taxation and work to the nearest 10p). O A. £81.30 O B. £94.00 OC. £99.60 O D.£106.10 O E. £108.80
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Q:4 XYZ currently has common stock trading at $40 per share. XYZ just paid a dividend of $2.00 per share, which is expected to grow at a constant rate of 5%. XYZ's beta is 1.5, the risk-free rate is 2%, and the market return is expected to be 8%. The pre-tax yield on XYZ's bonds is 7%. XYZ's finance department believes that new stock would require a premium of 5% over their own bond yield. Flotation cost for issuing new stock is 10%. Compute the cost of retained earnings using the bond yield plus risk premium approach (show your answer in percent, and to 2 decimal places. Example: 9.62%).
Problem 19-15 Dividend Policy Mahomes Company has a current period cash flow of $1.5 million and pays no dividends. The present value of the company's future cash flows is $18 million. The company is entirely financed with equity and has 780,000 shares outstanding. Assume the dividend tax rate is zero. a. What is the share price of the company's stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Share price b. Suppose the board of directors of the company announces its plan to pay out 50 percent of its current cash flow as cash dividends to its shareholders. Jeff Miller, who owns 1,300 shares of the company's stock, wants to achieve a zero payout policy on his own, by buying or selling shares. How many shares should he sell or buy? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Number of shares to
Problem 13-9 Calculating the WACC Dani Corporation has 7 million shares of common stock outstanding. The current share price is $79, and the book value per share is $10. The company also has two bond issues outstanding. The first bond issue has a face value of $120 million, a coupon rate of 4 percent, and sells for 92 percent of par. The second issue has a face value of $105 million, a coupon rate of 3 percent, and sells for 104 percent of par. The first issue matures in 22 years, the second in 7 years. Suppose the most recent dividend was $4.75 and the dividend growth rate is 5.2 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. The tax rate is 25 percent. 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 %

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