Sound Systems has 200 shares of common stock outstanding at a market price of $37 a share. The firm just paid an annual dividend in the amount of $1.20 per share. Dividends are expected to increase at 4 percent annually. The firm also has five Serial A bonds outstanding each with a face value of $1,000 and all selling at the same price that equals to 99 percent of face value. The bonds have the same coupon rate of 6 percent and the same yield to maturity of 6.7 percent. All interest is tax deductible. If the tax rate is 20 percent, what is the weighted average cost of capital? 6.57% 6.87% 6.51% 5.93% 7.12%

Sound Systems has 200 shares of common stock outstanding at a market price of $37 a share. The firm just paid an annual dividend in the amount of $1.20 per share. Dividends are expected to increase at 4 percent annually. The firm also has five Serial A bonds outstanding each with a face value of $1,000 and all selling at the same price that equals to 99 percent of face value. The bonds have the same coupon rate of 6 percent and the same yield to maturity of 6.7 percent. All interest is tax deductible. If the tax rate is 20 percent, what is the weighted average cost of capital? 6.57% 6.87% 6.51% 5.93% 7.12%

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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Dothraki has 50,000,000 shares of common stock outstanding that are trading for $29.70 per share. The company’s beta is 1.4. Financial analysts estimate that the market risk premium over 10-year Treasury Bonds is 6 percent and 10-year Treasury Bonds currently yield 2%. Dothraki’s outstanding bonds have a 6.0% coupon rate, a $1,000 face value, pay semi-annual coupons, and mature in 10 years. There are 450,000 of these bonds outstanding and they are currently selling in the open market for 110% of par value. The details of your relevant cash flow projections (Operating Cash Flow, Capital Spending, Net Working Capital, and Total Cash Flow) should be clearly presented along with the NPV and IRR in the cover sheet of answers, along with your final recommendation. You have also informed you that the tax rate to use for the WACC and the capital budgeting analysis is 20%. What is the WACC for Dothraki for this project?
XRT Infrastructure Corp. has 80,000 bonds outstanding that are selling at 90% of the par value (Bonds are selling at discount). Bonds with similar characteristics are yielding 10.8%. The company also has 4 million shares of common stock outstanding. The stock has a beta of 1.1 and sells for $50 per share. The common shareholder anticipates receiving a dividend that will growth at 0%, based on the fact they received $5 dividend last year. The capital market analysts predict that dividends will continue to grow at the same rate into the foreseeable future. The firm’s tax rate is 28 percent. What would be your estimate of the cost of common stock (cost of equity)? What would be the estimate cost of capital (WACC)?
A corporation has 9,000 bonds outstanding with a 5% annual coupon rate, 7 years to maturity, a $1,000 face value, and a $1,200 market price. The company's 110,000 shares of preferred stock pay a $4 annual dividend, and sell for $40 per share. The company's 500,000 shares of common stock sell for $25 per share and have a beta of 1 The risk free rate is 5%, and the market return is 11%. Calculate cost of debt? Briefly show your steps. Calculate cost of preferred stock? Briefly show your steps. Calculate cost of equity? Briefly show your steps. what is company's pre-tax WACC? Briefly show your steps. What are the weight of debt, preferred stock and equity?Briefly show your steps.
A company went public by issuing 500,000 shares of common stock at $10 per share. The shares are currently traded with a 40% premium. Current benchmark government bond rate is 8%, market return is 20% and the company has an unlevered beta coefficient of 0.26. At the beginning of the year, it issued 50,000 bonds of $1,000 par paying 10% coupon annually maturing in 20 years. The yield to maturity is always 10.61%. The bonds are currently trading with $80 discount. If the tax rate is 20%, what would be the approximate weighted average cost of capital (WACC) using the market values of debt and equity? A) 8.84%B) 9.28%C) 10.58%D) 11.00%E) Other (please specify)
The JIRAF Company has 1700 bonds outstanding that have a market price of $1200 each and a face value of $1000. floatation cost is 0.015 the bond pays coupon of 0.055 quarterly for 11 years. The company also has 6,00 shares of preferred stock at a market price of $40 and dividends 1.5 each par value 20 dollars. The common stock is priced at $29 a share it is undervalued by $1.5 and there are 70000 shares outstanding, par value is 5 dollars the stock paid this year $1.1 and will continue to grow at a rate of 0.035 TAXES ARE 0.25 what is the cost of debt after tax? what is the cost of PS what is the cost of common stock? what is the weight of the bond according to book value method what is the weight of the stock according to book value method what is the weight of preferred stock according to book value method what is the weight of preferred stock according to book value method
A&P Inc., the grocery store chain, has 6 million shares of common stock outstanding which currently trade for $40 per share. The company also has 150,000 bonds each with a face value of $1,000 and annual coupons of $50. The bonds have 6 years to maturity and the next coupon is due in one year. The yield on the bonds is 5%. The company's beta is 1.05, the risk-free rate is 3%, and the expected return on the market is 8%. The tax rate is 35%. What is A&P's WACC? Express your answer in percentage form rounded to two decimal places. WACC = ?%
Suppose Westerfield Co. has the following financial information: Debt: 900, 000 bonds outstanding with a face value of $1,000. The bonds currently trade at 85% of par and have 12 years to maturity. The coupon rate equals 7%, and the bonds make semiannual interest payments. Preferred stock: 600,000 shares of preferred stock outstanding; currently trading for $108 per share, paying a dividend of $9 annually. Common stock: 25,000,000 shares of common stock outstanding; currently trading for $185 per share. Beta equals 1.22. Market and firm information: The expected return on the market is 9%, the risk - free rate is 5%, and the tax rate is 21 %. Calculate the weight of debt in the capital structure. (Enter percentages as decimals and round to 4 decimals)
Charter Corp. has issued 1,554 debentures with a total principal value of $1,554,000. The bonds have a coupon interest rate of 9%. a. What dollar amount of interest per bond can an investor expect to receive each year from Charter? b. What is Charter's total interest expense per year associated with this bond issue? c. Assuming that Charter is in a 39% corporate tax bracket, what is the company's net after-tax interest cost associated with this bond issue?
McCann Catching, Inc. has 3.00 million shares of stock outstanding. The stock currently sells for $12.79 per share. The firm's debt is publicly traded and was recently quoted at 89.00% of face value. It has a total face value of $19.00 million, and it is currently priced to yield 10.00%. The risk free rate is 3.00% and the market risk premium is 8.00%. You've estimated that the firm has a beta of 1.20. The corporate tax rate is 34.00%. The firm is considering a $45.89 million expansion of their production facility. The project has the same risk as the firm overall and will earn $11.00 million per year for 7.00 years. What is the NPV of the expansion? (answer in terms of millions, so 1,000,000 would be 1.0000)
Big Door Company has 8.7 million shares outstanding, which are currently trading for about $13 per share and have a levered equity beta of 1.2. Big Door has 19,900 outstanding bonds, with a 4% coupon rate, payable semi-annually and due in 10 years. The bonds are rated BBB. Currently the credit spread for BBB is 178 basis points over equivalent-maturity Government of Canada debt. The current yield on 10-year Canada bonds is 5%, compounded semi-annually. The risk-free interest rate is 2%, and the market risk premium is 6.6%. The company has a 35% tax rate. (Do not round intermediate calculations.) a. Calculate Big Door's WACC. (Round your answer to 2 decimal places.) WACC b. Calculate Big Door's unlevered beta, using the following formula: (Round your answer to 2 decimal places.) Pleveret Pdebtx (1–Tc)×D/E BU 1+(1–Tc)×D/E es Unlevered beta c. If Big Door was 50% debt-financed, what would be its WACC? Assume that the beta of its debt is unchanged by the capital structure change. (Round…
Amiba PLC is looking for financial investments in the securities market. Two investment options are available in different securities: Bonds and ordinary shares. Company A is issuing bonds having 12% coupon rate. Interest is paid semi-annually. The bonds have a face value of $1,000 each and will mature 10 years from now. Company B is issuing ordinary shares and just paid a dividend of $6.50 per share. The Company Management agreed on the steady growth of 12% in dividends and earnings over the foreseeable future. The required rate of return for shares of this type is 18%. Required: Compute the current value of company A bonds if the required rate of return is 10%

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