You have been assigned to calculate the Weighted Average-Cost-of-Capital (WACC) for your small firm The company has three sources of long-term capital. Its marginal tax rate is 21% First, there are 2,354,000 shares of common stock outstanding which are currently trading at $37.51 per share. You estimate that your firm has a beta of 0.90, and that the long-term return in equity markets will be 11.50%. The current return on short-term T-Bills is 2.25% Second, the firm has 190.000 shares of preferred stock outstanding. These shares pay annual (perpetual) dividends of $7.00 per share, and are currently selling for $94.62. Third, there is an issue of 62.500 coupon bonds outstanding. These bonds have a face value of $1,000, mature in seventeen years, and pay 5.74% annual coupons These instruments are currently trading for $1.054.23. Based on the data, what portion of the market value of the firm's assets are financed with debt? $1.29 % 38.27% - 37.03% O 61.73%
You have been assigned to calculate the Weighted Average-Cost-of-Capital (WACC) for your small firm The company has three sources of long-term capital. Its marginal tax rate is 21% First, there are 2,354,000 shares of common stock outstanding which are currently trading at $37.51 per share. You estimate that your firm has a beta of 0.90, and that the long-term return in equity markets will be 11.50%. The current return on short-term T-Bills is 2.25% Second, the firm has 190.000 shares of preferred stock outstanding. These shares pay annual (perpetual) dividends of $7.00 per share, and are currently selling for $94.62. Third, there is an issue of 62.500 coupon bonds outstanding. These bonds have a face value of $1,000, mature in seventeen years, and pay 5.74% annual coupons These instruments are currently trading for $1.054.23. Based on the data, what portion of the market value of the firm's assets are financed with debt? $1.29 % 38.27% - 37.03% O 61.73%
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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Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
Question
Transcribed Image Text:You have been assigned to calculate the Weighted-Average-Cost-of-Capital (WACC) for your small firm
The company has three sources of long-term capital. Its marginal tax rate is 21%
First, there are 2,354.000 shares of common stock outstanding which are currently trading at $37.51 per share. You estimate that your firm hasa beta of 0.90, and
that the long-term return in equity markets will be 11.50%. The current return on short-term T-Bills is 2.25%
Second, the firm has 190,000 shares of preferred stock outstanding. These shares pay annual (perpetual) dividends of $7.00 per share, and are currently selling for
$94.62.
Third, there is an issue of 62.500 coupon bonds outstanding. These bonds have a face value of $1.000, mature in seventeen years, and pay 5,74% annual coupons
These instruments are currently trading for $1,054.23.
Based on the data, what portion of the market value of the firm's assets are financed with debt?
Ⓒ$1.29%
38.27%
37.03%
Q61.73%
42.73%
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