The Crane Products Co. currently has debt with a market value of $275 million outstanding. Thedebt consists of 9 percent coupon bonds (semiannual coupon payments) which have a maturity of 15years and are currently priced at $1,418.61 per bond. The firm also has an issue of 2 millionpreferred shares outstanding with a market price of $11 per share. The preferred shares pay anannual dividend of $1.20. Crane also has 14 million shares of common stock outstanding with a priceof $20.00 per share. The firm is expected to pay a $2.20 common dividend one year from today, andthat dividend is expected to increase by 5 percent per year forever. If Crane is subject to a 40percent marginal tax rate, then what is the firm's weighted average cost of capital?Excel Template(Note: This template includes the problem statement as it appears in your textbook. The problemassigned to you here may have different values. When using this template, copy the problemstatement from this screen for easy reference to the values you've been given here, and be sure toupdate any values that may have been pre-entered in the template based on the textbook versionof the problem.) Calculate the cost of debt. (Round intermediate calculations to 4 decimal places, eg. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.)Cost of debt%Calculate the cost of preferred equity. (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.)Cost of preferred equity%Calculate the cost of common equity. (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to O decimal places, e.g. 15%.)Cost of common equityWhat is the firm's weighted average cost of capital? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%,.)WACC%

1) cost of debt Using financial calculator, N =15*2 =30 PMT = 1000*9%/2 =45 PV = -1418.61 FV = 1000…

The Crane Products Co. currently has debt with a market value of $275 million outstanding. The debt consists of 9 percent coupon bonds (semiannual coupon payments) which have a maturity of 15 years and are currently priced at $1,418.61 per bond. The firm also has an issue of 2 million preferred shares outstanding with a market price of $11 per share. The preferred shares pay an annual dividend of $1.20. Crane also has 14 million shares of common stock outstanding with a price of $20.00 per share. The firm is expected to pay a $2.20 common dividend one year from today, and that dividend is expected to increase by 5 percent per year forever. If Crane is subject to a 40 percent marginal tax rate, then what is the firm's weighted average cost of capital?

The Crane Products Co. currently has debt with a market value of $275 million outstanding. The debt consists of 9 percent coupon bonds (semiannual coupon payments) which have a maturity of 15 years and are currently priced at $1,418.61 per bond. The firm also has an issue of 2 million preferred shares outstanding with a market price of $11 per share. The preferred shares pay an annual dividend of $1.20. Crane also has 14 million shares of common stock outstanding with a price of $20.00 per share. The firm is expected to pay a $2.20 common dividend one year from today, and that dividend is expected to increase by 5 percent per year forever. If Crane is subject to a 40 percent marginal tax rate, then what is the firm's weighted average cost of capital?

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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Concept explainers

Consolidation

Consolidation in general examination implies an asset oscillating between well-defined methods of trading status. Consolidation is commonly known as market indecisiveness, which completes when the asset's values move forward or backward the trading structure.

Question

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The Crane Products Co. currently has debt with a market value of $275 million outstanding. The
debt consists of 9 percent coupon bonds (semiannual coupon payments) which have a maturity of 15
years and are currently priced at $1,418.61 per bond. The firm also has an issue of 2 million
preferred shares outstanding with a market price of $11 per share. The preferred shares pay an
annual dividend of $1.20. Crane also has 14 million shares of common stock outstanding with a price
of $20.00 per share. The firm is expected to pay a $2.20 common dividend one year from today, and
that dividend is expected to increase by 5 percent per year forever. If Crane is subject to a 40
percent marginal tax rate, then what is the firm's weighted average cost of capital?
Excel Template
(Note: This template includes the problem statement as it appears in your textbook. The problem
assigned to you here may have different values. When using this template, copy the problem
statement from this screen for easy reference to the values you've been given here, and be sure to
update any values that may have been pre-entered in the template based on the textbook version
of the problem.)

Calculate the cost of debt. (Round intermediate calculations to 4 decimal places, eg. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.)
Cost of debt
%
Calculate the cost of preferred equity. (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.)
Cost of preferred equity
%
Calculate the cost of common equity. (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to O decimal places, e.g. 15%.)
Cost of common equity
What is the firm's weighted average cost of capital? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%,.)
WACC
%

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