Question 3 (1 The market risk pren.ium for FCIB is 9 percent, and has a tax rate of 35 percent. The risk-free rate of interest is 5%. Willow-Woods Inc. has a capital structure comprised of the following: • 8,500,000 shares of common stock outstanding, • 200,000 shares of 7 percent preferred stock outstanding, and • 85,000, 8.5 percent semiannual bonds outstanding, par value of $1,000 each. The common stock currently sells for $34 per share and has a beta of 1.2, the preferred stock currently sells for $83 per share, and the bonds have 15 years to maturity and sell for 93 percent of par. a) What is the market value of Willow-Woods' capital structure?- b) What rate should Willow-Woods should use to discount the cash flows of a new investment project that has the same risk as the company's typical project? –
Question 3 (1 The market risk pren.ium for FCIB is 9 percent, and has a tax rate of 35 percent. The risk-free rate of interest is 5%. Willow-Woods Inc. has a capital structure comprised of the following: • 8,500,000 shares of common stock outstanding, • 200,000 shares of 7 percent preferred stock outstanding, and • 85,000, 8.5 percent semiannual bonds outstanding, par value of $1,000 each. The common stock currently sells for $34 per share and has a beta of 1.2, the preferred stock currently sells for $83 per share, and the bonds have 15 years to maturity and sell for 93 percent of par. a) What is the market value of Willow-Woods' capital structure?- b) What rate should Willow-Woods should use to discount the cash flows of a new investment project that has the same risk as the company's typical project? –
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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Transcribed Image Text:Question 3 (1
The market risk pren.ium for FCIB is 9 percent, and has a tax rate of 35 percent. The risk-free
rate of interest is 5%.
Willow-Woods Inc. has a capital structure comprised of the following:
• 8,500,000 shares of common stock outstanding,
• 200,000 shares of 7 percent preferred stock outstanding, and
85,000, 8.5 percent semiannual bonds outstanding, par value of $1,000 each.
The common stock currently sells for $34 per share and has a beta of 1.2, the preferred stock
currently sells for $83 per share, and the bonds have 15 years to maturity and sell for 93
percent of par.
a) What is the market value of Willow-Woods' capital structure? – 4
b) What rate should Willow-Woods should use to discount the cash flows of a new
investment project that has the same risk as the company's typical project? -
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