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The market risk premium for FCIB is 9 percent, and has a tax rate of 35 percent. The risk-freerate of interest is 5%.Willow-Woods Inc. has a capital structure comprised of the following:0 8,500,000 shares of common stock outstanding, 0 200,000 shares of 7 percent preferred stock outstanding, andë

The market risk premium for FCIB is 9 percent, and has a tax rate of 35 percent. The risk-freerate of interest is 5%.Willow-Woods Inc. has a capital structure comprised of the following:0 8,500,000 shares of common stock outstanding, 0 200,000 shares of 7 percent preferred stock outstanding, andë

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Please answer part B.
The market risk premium for FCIB is 9 percent, and has a tax rate of 35 percent. The risk-freerate of interest is 5%.Willow-Woods Inc. has a capital structure comprised of the following:0 8,500,000 shares of common stock outstanding, 0 200,000 shares of 7 percent preferred stock outstanding, and| 85,000, 8.5 percent semiannual bonds outstanding, par value of $1,000 each.The common stock currently sells for $34 per share and has a beta of 1.2, the preferred stock currently sells for $83 per share, and the bonds have 15 years to maturity and sell for 93 percent of par. a) What is the market value of Willow-Woods' capital structure? b) What rate should Willow-Woods should use to discount the cash flows of a new investment project that has the same risk as the company's typical project?
Transcribed Image Text:The market risk premium for FCIB is 9 percent, and has a tax rate of 35 percent. The risk-freerate of interest is 5%.Willow-Woods Inc. has a capital structure comprised of the following:0 8,500,000 shares of common stock outstanding, 0 200,000 shares of 7 percent preferred stock outstanding, and| 85,000, 8.5 percent semiannual bonds outstanding, par value of $1,000 each.The common stock currently sells for $34 per share and has a beta of 1.2, the preferred stock currently sells for $83 per share, and the bonds have 15 years to maturity and sell for 93 percent of par. a) What is the market value of Willow-Woods' capital structure? b) What rate should Willow-Woods should use to discount the cash flows of a new investment project that has the same risk as the company's typical project?
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