Titan Corporation has 9.6 million shares of common stock outstanding and 400,000 5.7 percent semiannual bonds outstanding, with a par value of $1,000 each. The common stock currently sells for $44 per share and has a beta of 1.2; the bonds have 20 years to maturity and sell for 115 percent of par. The market risk premium is 8.4 percent, T-bills are yielding 4 percent, and the company's tax rate is 21 percent. a. What is the firm's market value capital structure? (Do not round intermediate calculations and round your answers to 4 decimal places e a 1616)

Titan Corporation has 9.6 million shares of common stock outstanding and 400,000 5.7 percent semiannual bonds outstanding, with a par value of $1,000 each. The common stock currently sells for $44 per share and has a beta of 1.2; the bonds have 20 years to maturity and sell for 115 percent of par. The market risk premium is 8.4 percent, T-bills are yielding 4 percent, and the company's tax rate is 21 percent. a. What is the firm's market value capital structure? (Do not round intermediate calculations and round your answers to 4 decimal places e a 1616)

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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Blooming Ltd. currently has the following capital structure: Debt: $2,500,000 par value of outstanding bond that pays annually 12% coupon rate with an annual before-taxyield to maturity of 10%. The bond issue has face value of S1,000 and will mature in 25 years. Ordinary shares: 65,000 outstanding ordinary shares. The firm plans to pay a S7.50 dividend per share in the next financial year. The firm is maintaining 3% annual growth rate in dividend, which is expected to continue indefinitely. Preferred shares: 40 000 outstanding preferred shares with face value of $100, paying fixed dividend rate of 14%. Company tax rate is 30%. Required: Complete the following tasks: a) Calculate the current price of the corporste bond? b) Calculate the current price of the ordinary share if the average return of the shares in the same industry is 9%?, c) Calculate the current value of the preferred share if the average return of the shares in the same industry is 12% (. d) Calculate the current market…
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?
Swift plc has 10,000 shares. The current share price is £40, and the cost of equity is 13%. The company has also 1,000 bonds outstanding, with 13 years to maturity, a coupon rate of 8% and a face value of £1,000. The bonds make semiannual coupon payments and the current price is £856.25 per bond. The tax rate is 20%. What is the weighted average cost of capital (WACC) of the company? Select one: a. 9.5% b. None of these answers is correct. c. 9.4% d. 9.7% e. 9.6%
Manshuk
Badger Corp. has an issue of 6% bonds outstanding with 6 months left to maturity. The bonds are currently priced at $993.02, and pay interest semiannually. The firm's marginal tax rate is 40%. The estimated risk premium between the company's stock and bond returns is 5%. The firm's expects to maintain a capital structure with 40% debt and 60% equity going forward. The company's W.A.C.C. is ____%.
G4X Inc. is a publicly traded company with 25 million shares outstanding. The stock last traded at $10 a share and has a levered beta of 1.4. G4X Inc. has a $25 million bond outstanding on which it makes $1 million interest only payments each year with 5 years left to maturity. In addition, G4X Inc. has operating leases with required lease payments of $2 million a year for the next five years. Moody's rates the bond Baa which has a current default spread of 1.5%. The current marginal tax rate is 37%. The current risk-free rate is 2.0%, and the current equity risk premium is 6.0%. What is the current cost of capital for G4X Inc.?
Badger Corp. has an issue of 6% bonds outstanding with 6 months left to maturity. The bonds are currently priced at $1,008.11, and pay interest semiannually. The firm's marginal tax rate is 40%. The estimated risk premium between the company's stock and bond returns is 5%. The firm's expects to maintain a capital structure with 40% debt and 60% equity going forward. The company's W.A.C.C. is %. Margin of error for correct responses: +/-.10(%) Rounding and Formatting instructions: Do not enter dollar signs, percent signs, commas, X, or any words in your response. Do not round any intermediate work, but round your "final response to 2 decimal places (example: if your answer is 12.3456, 12.3456%, or $12.3456, you should enter 12.35).
Phillips Equipment Inc. has 72,000 bonds outstanding that are each selling at $1,066 in the market. Each bond has 8 years left to maturity, a $1000 face value and a coupon rate of 5%. Coupons are paid semiannually. The company also has 1.9 million shares of common stock outstanding. The common stock has a beta of 1.35 and sells for $44 a share. The U.S. Treasury bill is yielding 3.1 percent and the return on the market is 9.5 percent. The corporate tax rate is 35 percent. (a) Determine the firms market value weight for debt (Enter answers as a % to 2 decimal places) 8.41 % (b) Determine the firms market value weight for equity (Enter answers as a % to 2 decimal places) 91.59 % (c) What is the firms after tax cost of debt? (Enter answers as a % to 2 decimal places) 2.81% (d) What is the firms cost of equity? (Enter answers as a % to 2 decimal places) 11.74 % (e) Using the information you have found in the earlier parts, determine the Cost of Capital for Phillips Equipment Inc. (Enter…
Phillips Equipment Inc. has 72,000 bonds outstanding that are each selling at $1,066 in the market. Each bond has 8 years left to maturity, a $1000 face value and a coupon rate of 5%. Coupons are paid semiannually. The company also has 2.8 million shares of common stock outstanding. The common stock has a beta of 1.05 and sells for $45 a share. The U.S. Treasury bill is yielding 2.4 percent and the return on the market is 9 percent. The corporate tax rate is 35 percent. (a) Determine the firms market value weight for debt (Enter answers as a % to 2 decimal places) [ (b) Determine the firms market value weight for equity (Enter answers as a % to 2 decimal places) [ (c) What is the firms after tax cost of debt? (Enter answers as a % to 2 decimal places)[ % (d) What is the firms cost of equity? (Enter answers as a % to 2 decimal places) (e) Using the information you have found in the earlier parts, determine the Cost of Capital for Phillips Equipment Inc. (Enter answers as a % to 2…
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?
Blooming Ltd. currently has the following capital structure: Debt: $2,500,000 par value of outstanding bond that pays annually 12% coupon rate with an annual before-tax yield to maturity of 109%. The bond issue has face value of $1,000 and will mature in 25 years. Ordinary shares: 65,000 outstanding ordinary shares. The firm plans to pay a $7.50 dividend per share in the next financial year. The firm is maintaining 3% annual growth rate in dividend, which is expected to continue indefinitely. Preferred shares: 40 000 outstanding preferred shares with face value of $100, paying fixed dividend rate of 14%. Company tax rate is 30%. Required: Complete the following tasks: 3) Calculate the current price of the corporate bond? b) Calculate the current price of the ordinary share if the average return of the shares in the same industry is 9%: - c) Calculate the current value of the preferred share if the average return of the shares in the same industry is 12% d) Calculate the current market…
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…

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