I need D and E. 2. TRM Consulting Services currently has the following capital structure:SourceBook ValueQuantityCommon Stock$ 25,000,0001,250,000Preferred Stock5,000,000100,000Debt8,600,0008,600New debt would mature on June 30, 2051, have a coupon rate of 7%, and wouldbe sold for their par value of $1,000. The bonds pay interest semiannually, andflotation costs would be 2% of the selling price. The bonds would be issued onJune 30, 2021.The preferred stock pays a $6 dividend each year and is currently valued at $75per share. Flotation costs on preferred would be 4% of the price.The common stock, which can be bought for $35, has experienced a 6% annualgrowth rate in dividends and is expected to pay a $1.65 dividend next year. Flota-tion costs on new common equity would be 8%. The stock has a beta of 1.25, therisk-free rate is 3%, and the expected market risk premium is 6%.In addition, the firm expects to generate $150,000 of retaincd carnings. Assumethat TRM's marginal tax rate is 25%.Set up a worksheet with all of the data from the problem in a well-organizedinput area.a.b. Calculate the book-valuc weights for cach source of capital.Calculate the market-value weights for each source of capital.C.d. Calculate the component costs of capital (i.e., debt, preferred equity, retainedearnings, and new common equity). Use the YIELD function (see page 311)when finding the after-tax cost of debt. Use the CAPM to find the cost ofretained earnings, and the constant growth model for new common equity.e. Calculate the weighted average costs of capital using both the market-valueand book-value weights with retained carnings and also new common equity. DEF1General InformationTax Rate25%Available Retained Earnings $150,0005Bonds6.Settlement Date6/30/2021Maturity DateCoupon RateFrequency76/30/20518.7.0%9.2$ 1,000$ 1,00010 Face Value11 Price12 Flotation Costs2.00%13 Yield to Maturity14 After-tax Cost of DebtUse Yield function w/ (-)Net Proceeds in Place of Price1516Preferred Equity17 Dividend618 Face Value5019 Price7520 Flotation Costs4.00%21 Cost of Preferred EquityUse Perpetuity Model for Prefereed w/ Net Proceeds in Place of Price)2223Common Equity24 Dividend (D1)1.6525 Growth Rate6%26 Price$ 35.0027 Flotation Costs8%28 Beta1.2529 Risk-free Rate3%30 Market Risk Premium6%31 Cost of Retained Earnings32 Cost of New Common EquityHint: Use CAPMHint: Use DDM with Net Proceeds33SourceBook ValueMarket Value BV Weights MV WeightsQuantity1,250,000 $ 25,000,000 $ 43,750,000100,000 $ 5,000,000 $8,600 $ 8,600,000 $3435 Common64.77%73.10%36 Preferred7,500,00012.95%12.53%37 Debt8,600,000$ 38,600,000 $ 59,850,00022.28%14.37%38 Totals100.00%100.00%3940Weighted Average Cost of CapitalBook Value WeightsWith Retained Earnings414243With New Common Equity44 Market Value WeightsWith Retained Earnings4546With New Common Equity

Note:Hi, based on the weights provided, Weighted Average Cost of capital is determined. Screen Shot…

TRM Consulting Services currently has the following capital structure: Source Book Value Quantity Common Stock Preferred Stock $ 25,000,000 1,250,000 5,000,000 100,000 Debt 8,600,000 8,600 New debt would mature on June 30, 2051, have a coupon rate of 7%, and would be sold for their par value of $1,000. The bonds pay interest semiannually, and flotation costs would be 2% of the selling price. The bonds would be issued on June 30, 2021. The preferred stock pays a $6 dividend each year and is currently valued at $75 per share. Flotation costs on preferred would be 4% of the price. The common stock, which can be bought for $35, has experienced a 6% annual growth rate in dividends and is expected to pay a $1.65 dividend next year. Flota- tion costs on new common equity would be 8%. The stock has a beta of 1.25, the risk-free rate is 3%, and the expected market risk premium is 6%. In addition, the firm expects to generate $150,000 of retaincd carnings. Assume that TRM's marginal tax rate is 25%. Set up a worksheet with all of the data from the problem in a well-organized input area. a. b. Calculate the book-value weights for each source of capital. c. Calculate the market-value weights for each source of capital. d. Calculate the component costs of capital (i.e., debt, preferred equity, retained earnings, and new common equity). Use the YIELD function (see page 311) when finding the after-tax cost of debt. Use the CAPM to find the cost of retained carnings, and the constant growth model for new common equity. e. Calculate the weighted average costs of capital using both the market-value and book-value weights with retained earnings and also new common equity.

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