Your company had these balances on its balance sheet at the end of the last fiscal year: $65,000,000 15,000,000 40,000,000 15,000,000 37,500,000 Long-term debt Preferred stock Common stock Paid in excess Retained earnings The company's long-term debt is comprised of 20-year $1000 face value bonds issued 7 years ago at an 8% coupon rate. The bonds are now selling to yield 6%. Willerton's preferred is from a single issue of $100 par value, 9% preferred stock that is now selling to yield 8%. Willerton has 4 million shares of common stock outstanding at a current market price of $31. Assume the firm's cost of retained earnings is 17% and its marginal tax rate is 36%. Assume that the coupon payments are semi-annual. Calculate its WACC using its book-value-based capital structure ignoring flotation costs. Round the answer to two decimal places. Do not round your intermediate calculations. Do not include the "%". Make the same calculation using the market-value-based capital structure. Round the answer to two decimal places. Do not round your intermediate calculations. Do not include the "%". Hint: These two WACCs should be similar.

Your company had these balances on its balance sheet at the end of the last fiscal year: $65,000,000 15,000,000 40,000,000 15,000,000 37,500,000 Long-term debt Preferred stock Common stock Paid in excess Retained earnings The company's long-term debt is comprised of 20-year $1000 face value bonds issued 7 years ago at an 8% coupon rate. The bonds are now selling to yield 6%. Willerton's preferred is from a single issue of $100 par value, 9% preferred stock that is now selling to yield 8%. Willerton has 4 million shares of common stock outstanding at a current market price of $31. Assume the firm's cost of retained earnings is 17% and its marginal tax rate is 36%. Assume that the coupon payments are semi-annual. Calculate its WACC using its book-value-based capital structure ignoring flotation costs. Round the answer to two decimal places. Do not round your intermediate calculations. Do not include the "%". Make the same calculation using the market-value-based capital structure. Round the answer to two decimal places. Do not round your intermediate calculations. Do not include the "%". Hint: These two WACCs should be similar.

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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Company A's balance sheet as of today is as follows: Long-term debt (bonds, at par) Preferred stock Common stock ($10 par) Retained earnings Total debt and equity $10,000,000 2,000,000 10,000,000 4,000,000 $26,000,000 The bonds have a 4.0% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 10 years from today. The yield to maturity is 12%, so the bonds now sell below par. What is the current market value of the firm's debt? a. $5,412,032 b. $5,479,822 c. $5,751,032 d. $5,549,671 e. $5,249,841
ABC Trucking's balance sheet shows a total of noncallable $30 million long-term debt with a coupon rate of 6.80% and a yield to maturity of 8.10%. This debt currently has a market value of $48 million. The balance sheet also shows that the company has 10 million shares of common stock, and the book value of the common equity is $213.00 million. The current stock price is $23.80 per share; stockholders' required return, rs, is 15.05%; and the firm's tax rate is 36.00%. The CFO thinks the WACC should be based on market value weights, but the president thinks book weights are more appropriate. What is the difference between the WACCs using market value and the book value?Work with at least 4 decimals and round your final answer to two decimal places. For example, if your answer is $345.6671 round as 345.67 and if your answer is .05718 or 5.7182% round as 5.72. Group of answer choices –0.46% –0.49% –0.44% –0.34% –0.36%
Suppose Westerfield Co. has the following financial information: Debt: 900, 000 bonds outstanding with a face value of $1,000. The bonds currently trade at 85% of par and have 12 years to maturity. The coupon rate equals 7%, and the bonds make semiannual interest payments. Preferred stock: 600,000 shares of preferred stock outstanding; currently trading for $108 per share, paying a dividend of $9 annually. Common stock: 25,000,000 shares of common stock outstanding; currently trading for $185 per share. Beta equals 1.22. Market and firm information: The expected return on the market is 9%, the risk - free rate is 5%, and the tax rate is 21 %. Calculate the weight of debt in the capital structure. (Enter percentages as decimals and round to 4 decimals)
Find the average cost of retained earnings. - The stock price had risen from its initial value of $10 to its current level of $35 per share. There were currently 5 million shares outstanding. -The company issued 30-year bonds at par with a face value of $1000 and a coupon rate of 10% per year, and managed to raise $40 million for expansion. Currently, the AA rated bonds had 25 years left until maturity and were being quoted at 91.15% of par. Assumptions: 1. New debt would cost about the same as the yield on outstanding debt and would have the same rating.2. The firm would continue raising capital for future projects by using thesame target proportions as determined by the book values of debt andequity3. The equity beta (1.5) would be the same for all the divisions.4. The growth rates of earnings and dividends would continue at theirhistorical rate5. The corporate tax rate would be 34%.6. The flotation cost for debt would be 5% of the issue price and that forequity would be 10% of…
Given the following information for Magrath Power Co., find the WACC. Assume the company’s tax rate is 35%. Debt: 10,000 6.4% coupon bonds outstanding, $1,000 par value, 25 years to maturity, selling for 108% of par; the bonds make semiannual payments. Common stock: 495,000 shares outstanding, selling for $63 per share; the beta is 1.15. Preferred stock: 35,000 shares of 3.5% preferred stock outstanding, currently selling for $72 per share. Market: 7% market risk premium and 3.2% risk-free rate.
CMS Corporation's balance sheet as of today is as follows: Long-term debt (bonds, at par) Preferred stock Common stock ($10 par) Retained earnings Total debt and equity $10,000,000 2.000.000 10,000,000 4.000.000 $26.000,000 The bonds have a 6.6% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 10 years from today. The yield to maturity is 12%, so the bonds now sell below par. What is the current market value of the firm's debt? Select the correct answer. Oa. $6,900,480 Ob.$6,901,361 Oc$6,899,600 d. $6,903,121 Oe. $6,902,241
A company issued bonds with a par value of $250,000 and a maturity of 25 years. The Bonds pay interest every six months based on a nominal interest rate of 8% per year. If on the date of issuance of the bonds the market rate (yield) is 10%: a. What will be the selling price of the bonds? b. If after 15 years the company retires the bonds, paying the amount of $225,000, how much will the gain or loss on debt retirement? Go back and assume that the market rate is 5.75%. a. What will be the selling price of the bonds? b. Make the journal entry to recognize interest expense in the third six-month period of the bonds. Assume that the bonds do NOT pay periodic interest. a. What will be the selling price of the bonds? b. Make the journal entry to recognize interest expense in the third year of the bonds.
You are given the following information for Huntington Power Company. Assume the company's tax rate is 25 percent. Debt: Common stock: Market: 30,000 4.9 percent coupon bonds outstanding, $2,000 par value, 25 years to maturity, selling for 104 percent of par; the bonds make semiannual payments. 470,000 shares outstanding, selling for $76 per share; the beta is 1.10. 6 percent market risk premium and 4.1 percent risk-free rate. What is the company's WACC?
You are given the following information for Huntington Power Co. Assume the company's tax rate is 40 percent. Debt: Common stock: 5,000 6.2 percent coupon bonds outstanding, $1,000 par value, 20 years to maturity, selling for 109 percent of par; the bonds make semiannual payments. 460,000 shares outstanding, selling for $56 per share; the beta is .96. Market: 5 percent market risk premium and 4.6 percent risk-free rate. What is the company's WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) WACC %
Subject : Accounting Six years ago, the Silver Spar Company sold $50,000 par value, noncallable bonds that now have 14 yearsyears to maturity. The bonds have a 4.40% annual coupon rate that is paid quarterly. The bonds currently sell for $48,980 and the company's tax rate is 38%. What is the component cost of debt for use in the WACC calculation? Do not round your intermediate calculations.
Grossnickle Corporation issued 25-year, noncallable, 6.9% annual coupon bonds at their par value of $1,000 one year ago. Today, the market interest rate on these bonds is 4.5%. What is the current price of the bonds, given that they now have 24 years to maturity? a. $1,392.90 b. $1,401.92 c. $1,347.89 d. $1,363.52 e. $1,355.88
1. Sleeping Time has 8,000 bonds outstanding that are selling at 90% of par value. The bonds are issued with 8% annual coupon that matures in 15 years. The company also has 400,000 shares of common stock outstanding. The stock has a beta of 1.5 and sells for $30 a share. The U.S. Treasury bill is yielding 3% and the average return on market is 8%. Sleeping Time falls under 40% tax bracket. Required: What is Sleeping Time's weighted average cost of capital?

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