Titan has 9 million shares in issue and £12 millionnominal 6.5% coupon annual bonds outstandingwhich yield 7.2%. The equity price is £1.40 per shareand the Equity Beta is 1.20. The bonds have aweighted average price of 100%. Market RiskPremium is 10%, T-Bills yield 5% and Titan's taxrate is 28%.Show capital structure and valuation and calculateWACC.

To calculate the WACC (Weighted Average Cost of Capital) for Titan, we first need to determine the…

Answered: Titan has 9 million shares in issue and…

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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XYZ currently has common stock trading at $40 per share. XYZ just paid a dividend of $2.00 per share, which is expected to grow at a constant rate of 5%. XYZ's beta is 1.5, the risk-free rate is 2%, and the market return is expected to be 8%. The pre-tax yield on XYZ's bonds is 7%. XYZ's finance department believes that new stock would require a premium of 5% over their own bond yield. Flotation cost for issuing new stock is 10%. Compute the cost of retained earnings using the bond yield plus risk premium approach (show your answer in percent, and to 2 decimal places. Example: 9.62%).
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S. ALAM group financed using the following weights: 35% long term debt, 15% preferred stock and 40% common stock equity, and 10% retained earnings. The firm's corporate tax rate is 38% I. The firm can sell for tk. 990 an 8 years bond, Tk. 1000 par-value bond paying at an 11% coupon rate, flotation cost of per bond is 3.75% and under pricing by 2%. I1. Eleven percent (annual dividend) preferred stock having a par value of tk. 100 can be sold for tk. 85. An additional fee of tk. 5 per share must be paid to the underwriters. II. The firm's common stock currently selling for tk. 55 per share. The dividend expected to be paid at the end of the year is Tk. 5.35 per share. Dividends have been growing at an annual rate of 8.5%. Moreover, underwriting fees per share Tk. 7. a. Caleulate the WACC of the project and implications of investment decisions. b.The following two mutually exclusive projects have cash flows for its 5 years lifetime and cost of capital should be based on financing rubric…
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