You are hired to replace Samson as Finance Manager at Fun-land Corporation. You are given the following information concerning Fun-land Corporation: Debt: 12,000 bonds outstanding that pay $28.5 semi-annual coupon payments, with 15 years to maturity. The bond currently sells for 95 percent of its face value of $1,000. The corporate tax rate is 28%. Common stock: 235,000 shares of common stock currently selling for $56.5 per share. The stock will pay dividend of $3.5 next year. The dividend is expected to grow by 4 percent per year indefinitely. (a) Samson told you that the company’s pre-tax cost of debt is 5.7%, calculated by annual coupon payment of $57 per bond dividend by the face value of $1,000. Do you agree with his estimation? Briefly explain. (b) Calculate the cost of equity and after-tax cost of debt of Fun-land Corporation respectively. [in % with 2 decimal places.] (c) Calculate the company’s WACC. [in % with 2 decimal places.]
You are hired to replace Samson as Finance Manager at Fun-land Corporation. You are given the following information concerning Fun-land Corporation:
Debt: 12,000 bonds outstanding that pay $28.5 semi-annual coupon payments, with 15 years to maturity. The bond currently sells for 95 percent of its face value of $1,000. The corporate tax rate is 28%.
Common stock: 235,000 shares of common stock currently selling for $56.5 per share. The stock will pay dividend of $3.5 next year. The dividend is expected to grow by 4 percent per year indefinitely.
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(a) Samson told you that the company’s pre-tax cost of debt is 5.7%, calculated by annual coupon payment of $57 per bond dividend by the face value of $1,000. Do you agree with his estimation? Briefly explain.
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(b) Calculate the
cost of equity and after-tax cost of debt of Fun-land Corporation respectively. [in % with 2 decimal places.] -
(c) Calculate the company’s WACC. [in % with 2 decimal places.]
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