The balance sheet and some other information for Meig Inc. is provided below. Assets Current assets Net plant, property, and equipment Total assets Liabilities and Equity Accounts payable Accruals Current liabilities Long-term debt (200,000 bonds, $1,000 par value) Total liabilities Common stock (10,000,000 shares) Retained earnings Total shareholders' equity Total liabilities and shareholders' equity P → . Valueline reports Meig's beta estimate as 1.14. A proxy for the risk-free rate is the 10-year Treasury of 3.00% The required return on the stock market is 11.50%. $ 79,000,000 321,000,000 $400,000,000 $ 30,000,000 20,000,000 $ 50,000,000 200.000,000 $250,000,000 80,000,000 70.000.000 Meigs Inc.'s noncallable $1,000 par value, 30-year, 6.25% bonds with semiannual payments are selling for $1,150. The firm's tax rate is 35%. A) What is the after-tax cost of debt? B) Based on CAPM, what is the firm's cost of equity? C) Based on DDM Model, what is the firm's cost of equity? D) What is the best estimate of the firm's WACC? $150.000.000 $400,000,000 Meig Inc. just paid a dividend of $2.12. Meig has a long record of paying dividends, of which have been growing at a fairly constant rate of 6% over the last 20 years. It is expected that dividends will continue to grow as they have historically. Meig's stock presently sells for $20.
The balance sheet and some other information for Meig Inc. is provided below. Assets Current assets Net plant, property, and equipment Total assets Liabilities and Equity Accounts payable Accruals Current liabilities Long-term debt (200,000 bonds, $1,000 par value) Total liabilities Common stock (10,000,000 shares) Retained earnings Total shareholders' equity Total liabilities and shareholders' equity P → . Valueline reports Meig's beta estimate as 1.14. A proxy for the risk-free rate is the 10-year Treasury of 3.00% The required return on the stock market is 11.50%. $ 79,000,000 321,000,000 $400,000,000 $ 30,000,000 20,000,000 $ 50,000,000 200.000,000 $250,000,000 80,000,000 70.000.000 Meigs Inc.'s noncallable $1,000 par value, 30-year, 6.25% bonds with semiannual payments are selling for $1,150. The firm's tax rate is 35%. A) What is the after-tax cost of debt? B) Based on CAPM, what is the firm's cost of equity? C) Based on DDM Model, what is the firm's cost of equity? D) What is the best estimate of the firm's WACC? $150.000.000 $400,000,000 Meig Inc. just paid a dividend of $2.12. Meig has a long record of paying dividends, of which have been growing at a fairly constant rate of 6% over the last 20 years. It is expected that dividends will continue to grow as they have historically. Meig's stock presently sells for $20.
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter15: Financial Statement Analysis
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Problem 20BEA: The income statement, statement of retained earnings, and balance sheet for Somerville Company are...
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Transcribed Image Text:Cost of Capital
1)
The balance sheet and some other information for Meig Inc. is provided below.
Assets
Current assets
Net plant, property, and equipment
Total assets
Liabilities and Equity
Accounts payable
Accruals
Current liabilities
Long-term debt (200,000 bonds, $1,000 par value)
Total liabilities
Common stock (10,000,000 shares)
Retained earnings
Total shareholders' equity
Total liabilities and shareholders' equity
.
.
●
●
Valueline reports Meig's beta estimate as 1.14.
A proxy for the risk-free rate is the 10-year Treasury of 3.00%.
The required return on the stock market is 11.50%.
$ 79,000,000
321,000,000
$400,000,000
$ 30,000,000
20,000,000
$ 50,000,000
200,000,000
Meigs Inc.'s noncallable $1,000 par value, 30-year, 6.25% bonds with semiannual payments
are selling for $1,150.
The firm's tax rate is 35%.
A) What is the after-tax cost of debt?
B) Based on CAPM, what is the firm's cost of equity?
C) Based on DDM Model, what is the firm's cost of equity?
D) What is the best estimate of the firm's WACC?
$ 250,000,000
80,000,000
70,000,000
$150,000,000
$400,000,000
Meig Inc. just paid a dividend of $2.12. Meig has a long record of paying dividends, of which
have been growing at a fairly constant rate of 6% over the last 20 years. It is expected that
dividends will continue to grow as they have historically.
Meig's stock presently sells for $20.
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