The following financial information relate to Lang Industrial Systems Inc. and as a financialanalyst you are required to assist with the following problems:AssetsCurrent AssetsCashAccountsReceivableInventoryTotal CurrentAssetsFixed AssetsProperty, Plant,and EquipmentLessAccumulatedDepreciationNet FixedAssetsTotal AssetsBalance Sheet ($ in Millions)2022 2021540820550950174776400Total CurrentLiabilities1910 1400 Long-TermLiabilitiesLong-TermDebtTotal Long-Term LiabilitiesOwners' Equity2686600400800100700Liabilities and 2022 2021Owners' Equity2100CurrentLiabilitiesAccountsPayableNotes PayableCommon Stock($1 Par)RetainedEarningsTotal Owners'EquityTotal Liab. andOwners' Equity1120 8104601580431431340335675268637011804404403101704802100Income Statement ($ in Millions)2022SalesCost of Goods SoldAdministrative ExpensesDepreciationEarnings Before Interestand TaxesInterest ExpenseTaxable incomeTaxesNet IncomeDividendsAddition to RetainedEarnings110070010074226301961518116165 Question 4The Finance Manager, in implementing the strategic management of the company, is requiredto determine Lang Industrial Systems Inc.'s actual Weighted Average Cost of Capital (WACC).Debt: The company has 55,000 bonds outstanding with a face value of $1,000 per bond. Thebonds carry an 8% coupon, pay interest annually, and mature in 15 years. The bonds are sellingat 125% of face value.Common Stock: 15,000,000 shares outstanding with a market price per share of $18.50. Thecompany intends to pay a dividend of $1.50 next year; dividends are expected to grow by 2%annually.Preference Shares: 2,500,000 shares of preferred stock at a price of $40 per share and anannual dividend of $3 per share.Additional Information: The Company's Tax rate is 30%.Required: Calculate the Weighted Average Cost of Capital for Lang Industrial Systems Inc

WACC of a company refers to the return that it provides to its stakeholders. It considers the…

Question 4 The Finance Manager, in implementing the strategic management of the company, is required to determine Lang Industrial Systems Inc.'s actual Weighted Average Cost of Capital (WACC). Debt: The company has 55,000 bonds outstanding with a face value of $1,000 per bond. The bonds carry an 8% coupon, pay interest annually, and mature in 15 years. The bonds are selling at 125% of face value. Common Stock: 15,000,000 shares outstanding with a market price per share of $18.50. The company intends to pay a dividend of $1.50 next year; dividends are expected to grow by 2% annually. Preference Shares: 2,500,000 shares of preferred stock at a price of $40 per share and an annual dividend of $3 per share. Additional Information: The Company's Tax rate is 30%. Required: Calculate the Weighted Average Cost of Capital for Lang Industrial Systems Inc

Question 4 The Finance Manager, in implementing the strategic management of the company, is required to determine Lang Industrial Systems Inc.'s actual Weighted Average Cost of Capital (WACC). Debt: The company has 55,000 bonds outstanding with a face value of $1,000 per bond. The bonds carry an 8% coupon, pay interest annually, and mature in 15 years. The bonds are selling at 125% of face value. Common Stock: 15,000,000 shares outstanding with a market price per share of $18.50. The company intends to pay a dividend of $1.50 next year; dividends are expected to grow by 2% annually. Preference Shares: 2,500,000 shares of preferred stock at a price of $40 per share and an annual dividend of $3 per share. Additional Information: The Company's Tax rate is 30%. Required: Calculate the Weighted Average Cost of Capital for Lang Industrial Systems Inc

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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Assume ABC Corporation is a multinational company with the following financial information: Market value of equity (E): $500 million Market value of debt (D): $300 million Market value of preferred stock (PS): $50 million Cost of equity (Re): 10% Cost of debt (BTrd): 5% Corporate tax rate (Tc): 25% Cost of preferred stock ( Rps): 8% a. Calculate the WACC for ABC Corporation. Needs to be done in Excel
Robert Downey is the new finance manager in Avengers Corporation. The companies were considering expanding their business internationally. Currently the 9-month treasury bills are at 5.2 percent and the company risk premium is at 10 percent. The domestic beta is estimated at 1.2 while the international beta at 1.45. The company's capital structure comprises of 40 percent debts and the balance is equity. He also has gathered the other financial details as following: Assumptions Domestic International (%) (%) 8 12.5 Cost of debt, before tax Corporate income tax Return on market portfolio 20 30 15.0 18 Based on the information given, compute the Weighted Average Cost of Capital (WACC) for both domestic and international company.
Weighted average cost of capital A. The capital for investment of Executive Consultants, Inc. is as follows: Sources of capital Capital Debt (corporate bonds) $4,100,000 Prefferent shares $2,200,000 Common shares $2,800,000 B. To generate the $ 4.1 million of corporate bond capital, they issued bonds at $ 965 par value, with an annual coupon of $ 100 for the next 10 years, with a flotation cost of $ 10 per bond.C. The issue of preferred shares has a cost of $ 5 per share and will pay a dividend of 10% of its par value of $ 110 per preferred share.D. The risk-free rate is 3.45% and the market return is 11.25%. The company's beta coefficient is 1.23.E. Executive Consultants, Inc. has a tax liability of 35%.Problems:You must submit the procedure and all the calculations.1. Determine the capital structure of Executive Consultants, Inc.2. Calculate the cost of debt after taxes.3. Calculate the cost of preferred equity.
Integrative Case Assume that you were recently hired as assistant to Jerry Lehman, financial VP of Coleman Technologies. Your first task is to estimate Coleman’s cost of capital. Lehman has provided you with the following data, which he believes is relevant to your task: Questions: The firm’s marginal tax rate is 40%. The current price of Coleman’s 12 % coupon, semiannual payment, noncallable bonds with 15 years remaining to maturity is $1,153.72. Coleman does not use short-term interest-bearing debt on a permanent basis. New bonds would be privately placed with no flotation cost. The current price of the firm’s 10%, $100 par value, quarterly dividend, perpetual preferred stock is $113.10. Coleman would incur flotation costs of $2 per share on a new issue. Coleman’s common stock is currently selling at $50 per share. Its last dividend (D0) was $4.19, and dividends are expected to grow at a constant rate of 5% in the foreseeable future. Coleman’s beta is 1.2, the yield on Treasury…
On January 1, the total market value of the Tysseland Company was $60 million. During the year, the company plans to raise and invest $25 million in new projects. The firm's present market value capital structure, shown below, is considered to be optimal. Assume that there is no short-term debt. Debt $30,000,000 Common equity 30,000,000 Total capital $60,000,000 New bonds will have an 9% coupon rate, and they will be sold at par. Common stock is currently selling at $30 a share. The stockholders' required rate of return is estimated to be 12%, consisting of a dividend yield of 4% and an expected constant growth rate of 8%. (The next expected dividend is $1.20, so $1.20/$30 = 4%.) The marginal corporate tax rate is 35%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. Open spreadsheet In order to maintain the present capital structure, how much of the…
QUESTION 5 You are Chief Financial Officer of the ABC Corporation. ABC has two divisions, one of which is retail, and the other is manufacturing. ABC's debt-equity ratio (measured at market value) is one half. The company has $2.5 billion in face value of perpetual bonds which pay an annual coupon of 4% and have a yield to maturity of 10%. ABC's equity has a beta of 1.25. The company faces a 35% tax rate. The risk-free rate of return is 5.6% and the market risk premium, over and above the risk-free rate, is 8%. The company is considering a business expansion in the retail industry. The expansion project will generate $20 million free cash flow per year indefinitely. ABC is planning to maintain the industry average leverage ratio for the expansion project. Companies that operate purely in the manufacturing industry have an average beta of 0.8 and an average debt-equity ratio (measured at market value) of three quarter. Companies that operate purely in the retail industry have an average…
Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 40% long-term debt, 15% preferred stock, and 45% common stock equity (retained earnings, new common stock, or both). The firm's tax rate is 26%. Debt The firm can sell for $1005 a 13-year, $1,000-par-value bond paying annual interest at a 6.00% coupon rate. A flotation cost of 2.5% of the par value is required. Preferred stock 7.00% (annual dividend) preferred stock having a par value of $100 can be sold for $98. An additional fee of $5 per share must be paid to the underwriters. Common stock The firm's common stock is currently selling for $80 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.50 ten years ago to the $4.92 dividend payment, D0, that the company just recently made. If…
On January 1, 2009 the total assets of the Shipley Company were $ 180 million. During the year, the company plans to raise and invest $ 90 million. The firm's present capital structure is considered optimal.Assume that there is no short term debt. Long term debt 90,000,000 Common Equity 90, 000, 000 Total Liabilities and Equity 180,000,000 Project B Cash flow (2000) New bonds will have a coupon rate of 10% and will sell at par. Common stock, currently selling at $ 40 a share can be sold to net the company at$36 a share. Stockholders' required rate of return is 12%. (The next expected dividend is $1.60). Retained earnings are estimated to be $9 million. The tax rate is 40%. a. To maintain the present capital structure, how much of the capital budget must Shipley finance by equity? b. How much of the new equity funds needed must be generated internally?Externally? c. Calculate the cost of each of the equity components. d. Calculate the weighted average cost of capital.
On January 1, the total market value of the Tysseland Company was $60 million. During the year, the company plans to raise and invest $20 million in new projects. The firm's present market value capital structure, here below, is considered to be optimal. There is no short-term debt. Debt $30,000,000 Common equity 30,000,000 Total capital $60,000,000 New bonds will have a 10% coupon rate, and they will be sold at par. Common stock is currently selling at $30 a share. The stockholders' required rate of return is estimated to be 12%, consisting of a dividend yield of 4% and an expected constant growth rate of 8%. (The next expected dividend is $1.20, so the dividend yield is $1.20/$30 = 4%.) The marginal tax rate is 25%. In order to maintain the present capital structure, how much of the new investment must be financed by common equity? Round your answer to the nearest dollar. $ Assuming there is sufficient cash flow for Tysseland to maintain its target capital…
Hewlard Pocket's market value balance sheet is given. Assets Liabilities and Shareholders' Equity A. Original balance sheet Cash Debt 150,000 950,000 Equity $1,100,000 Other assets 1,100,000 Value of firm Value of firm $1,100,000 Shares outstanding = 100,000 Price per share = $1,100,000 / 100,000 = $1 Pocket needs to hold on to $52,000 of cash for a future investment. Nevertheless, it decides to pay a cash dividend of $2.10 per share and to replace cash as needed with a new issue of shares. After the dividend is paid and the new stock is issued: a. What will be the price per share? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What will be the total value of the company? (Enter your answers in whole dollars, not in millions.) c. What will be the total value of the stock held by new investors? (Enter your answers in whole dollars, not in millions. Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.) d. What…
Compute the weighted average cost of capital given the information below. Book Value of Debt $2,500,000,000 Market Value of Debt $2,750,000,000 Book Value of Equity $3,250,000,000 Market Value of Equity $4,000,000,000 Dividend Milberg has just paid $3.25 Current stock price $40.50 Growth rate of dividends 6% Bond information Coupon rate = 4%, maturity = 20 years, maturity value =$1,000 and the current price is $985.25. Assume interest is paid semiannually. Flotation cost of equity 4% Flotation cost of debt 2% Questions 2 through 8 use the following information. Milberg Golf has decided to sell a new line of golf club. The clubs will sell for $1,100 per set and have a variable cost of 80% of revenues per set. The company has spent $450,000 for a marketing study that determined the company will sell 80,000 sets per year for seven years. The company also plans to offer a line of golf balls, which are expected to…
Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 35% long-term debt, 20% preferred stock, and 45% common stock equity (retained earnings, new common stock, or both). The firm's tax rate is 21%. Debt The firm can sell for $1030 a 13-year, $1,000-par-value bond paying annual interest at a 7.00% coupon rate. A flotation cost of 2% of the par value is required. Preferred stock 8.5% (annual dividend) preferred stock having a par value of $100 can be sold for $90. An additional fee of $4 per share must be paid to the underwriters. Common stock The firm's common stock is currently selling for $60 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.75 ten years ago to the $5.41 dividend payment, D0, that the company just recently made. If the…

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