The Lewin Inc. has the following financing outstanding. What is the WACC for thecompany?Debt60,000 bonds with an 8% coupon rate and a quoted price of110; the bonds have 30 years to maturity; the bonds makeannual payments; $1,000 par value.100,000 shares of 6% preferred with a current price of$150, and a par value of $100.2,000,000 shares of common stock, the current price is $80,and the beta of the stock is 1.2.The corporate tax rate is 25%, the market risk premium is6%, and the risk-free rate is 3%.Preferred stockCommon stockMarket(2) What is the cost of Preferred stocks?

Preferred stock: It can be defined as a form of stock that has the combined characteristics as…

Answered: The Lewin Inc. has the following…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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LUVFINANCE, Inc. is estimating its WACC. It is operating at its optimal capital structure. Its outstanding bonds have a 12 percent coupon, paid semiannually, a current maturity of 17 years, and sell for $1,162 (Hint: use the current bond price, $1,162, when computing market value of debt). It has 100,000 bonds outstanding. The firm can issue new 20-year maturity semiannual bonds at par but will incur flotation costs of $50 per bond (Hint: the coupon rate on the new bonds the YTM on existing bonds). The firm could sell, at par, $100 preferred stock that pays a 12 percent annual dividend that is currently selling for $120. The firm currently has 1,000,000 shares of preferred stock outstanding. Rollins' beta is 1.16, the risk-free rate is 3 percent, and the market risk premium is 6 percent. The common stock currently sells for $100 a share and there are 5,000,000 shares = outstanding. The firm's marginal tax rate is 40 percent. What is the WACC?
The Saunders Investment Bank has the following financing outstanding. Debt: 47,000 bonds with a coupon rate of 5.2 percent and a current price quote of 105.5; the bonds have 16 years to maturity and a par value of $1,000. 16,300 zero coupon bonds with a price quote of 25.3, 25 years until maturity, and a par value of $10,000. Both bonds have semiannual compounding. Preferred stock: 142,000 shares of 3.7 percent preferred stock with a current price of $89 and a par value of $100. Common stock: 2,040,000 shares of common stock; the current price is $79 and the beta of the stock is 1.15. Market: The corporate tax rate is 22 percent, the market risk premium is 7.2 percent, and the risk-free rate is 3.2 percent. What is the WACC for the company?
Firm Z has issued 1,000,000 bonds. Each bond is priced at $929 and has a face value of $1000. It pays annual coupon payments and has a coupon rate of 3%. The bonds will mature in 20 years. Stock price of Firm Z is $10, and there are 50 million shares outstanding. There are 2 million shares of preferred stock, which offers $2 dividend and is priced at $40. Equity beta of Firm Z is 1.5 and current market portffolio yields 8% and the risk free rate is 2%. Corproate tax rate is 30%. Find the costs of debt, equity, preferred stock and WACC. Firm Z has invested $4 million in marketing campaign to assess the demand for the product Minish. This product will be in the market next year and will last five years. Revenues are projected to be $50 million per year along with expenses of $20 million. The firm spends $15 million immediately on equipment that will be depreciated using MACRS depreciation to zero. Additionally, it will use some fully depreciated existing equipment that has a market…
Firm Z has issued 1,000,000 bonds. Each bond is priced at $929 and has a face value of $1000. It pays annual coupon payments and has a coupon rate of 3%. The bonds will mature in 20 years. Stock price of Firm Z is $10, and there are 50 million shares outstanding. There are 2 million shares of preferred stock, which offers $2 dividend and is priced at $40. Equity beta of Firm Z is 1.5 and current market portffolio yields 8% and the risk free rate is 2%. Corproate tax rate is 30%. Find the costs of debt, equity, preferred stock and WACC. Please show your work.
The IPO Investment Bank has the following financing outstanding. Debt: 20,000 bonds with a coupon rate of 12 percent and a current price quote of 110; the bonds have 20 years to maturity. 190, 000 zero coupon bonds with a price quote of 20.5 and 30 years until maturity. Both bonds have a par value of $1,000 and semiannual coupons. Preferred stock: 110,000 shares of 10 percent preferred stock with a current price of $85, and a par value of $100. Common stock: 2,200, 000 shares of common stock; the current price is $71, and the beta of the stock is 1.45. Market: The corporate tax rate is 21 percent, the market risk premium is 5 percent, and the risk - free rate is 2 percent. What is the WACC for the company? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
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)
Your client wishes you to investigate a biotechnology company with the following balance sheet and details (below): Long-term debt $ Bonds: Par $100, coupon rate 7% p.a., 3 years to maturity 10,000,000 Equity Preference shares 8,000,000 Ordinary shares 18,000,000 Total 36,000,000 Notes: The company’s bank has advised that the interest rate on any new debt finance provided for the projects would be 6% p.a. if the debt issue is of similar risk and of the same time to maturity and coupon rate. There are currently 1,000,000 preference shares on issue, which pay a dividend of $0.85 per share. The preference shares currently sell for $5.69. The company’s existing 5,000,000 ordinary shares currently sell for $2.53 each. You have identified that the company has recently paid a $0.45 dividend. Historically, dividends have increased at an annual rate of 2% p.a. and are expected to continue to do so in the future. The company’s tax rate is 30%. Your client wishes to understand, with the use of…
Raghubhai
Q1. A company issued 20-year bonds with par value $1,000 two years ago at a coupon rate of 5 percent. The bonds make semiannual coupon payments. The yield to maturity on this bond is 4 percent. Calculate the current yield of the bond. Q2. A company has an odd dividend policy. The company will pay a dividend of $3 per share next year and has announced that it will increase the dividend by $5 per share for each of the subsequent four years and then maintains a constant 2% growth rate. If you require a return of 8 percent on the company’s stock. A. How much will you pay for a share today?B. At the price you are willing to pay for, what is the dividend yield in the first year? Q3. A project has the following cash flow with a discount rate of 12%: Annual cash flows: Year 0 Year 1 Year 2 Year 3 Year 4 $ -520,000 $ 170,000 $ 210,000 $ 225,000 $ 195,000 $520,000 is used in purchasing an equipment for the project only. Compute the following: Payback period; Discounted Payback…
5. A securities firm has provided the balance sheet below. Assets ($ millions) $ 34 Liabilities and Equity ($ millions) Short-term funding Cash $ 27 Debt securities 175 Bonds 300 Equity securities 400 Debentures 197 Other assets 12 Equity 97 Total Assets $ 621 Total Liabilities and Equity $ 621 The debt securities have an annual 7.25% coupon rate, 22 years to maturity and a yield to maturity of 6.75%. The market value of the equity securities and the other assets is equal to their book value. The firm has 500,000 shares outstanding and the price per share is $35.67. a. Calculate the firm's aggregate indebtedness to net capital ratio. b. Calculate the firm's highly liquid assets to total liabilities ratio. Based on the firm's ratios from a and b, is it in compliance with Rule 15C 3-1? Why or why not? C.

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