Question

Bonaime, Inc., has 7.8 million shares of common stock outstanding. The current share price is $62.80,...

Bonaime, Inc., has 7.8 million shares of common stock outstanding. The current share price is $62.80, and the book value per share is $5.80. The company also has two bond issues outstanding. The first bond issue has a face value of $71.8 million, a coupon rate of 7.3 percent, and sells for 89 percent of par. The second issue has a face value of $36.8 million, a coupon rate of 8.3 percent, and sells for 88 percent of par. The first issue matures in 19 years, the second in 11 years. The most recent dividend was $3.75 and the dividend growth rate is 9 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 38 percent. What is the company’s WACC?

Homework Answers

Answer #1

Value of equity = 7.8 * 62.80 = 489.84 million

Value of debt1 = 71.8 * 0.89 = 63.902million

Value of debt 2 = 36.8 * 0.88 =32.384 million


Total value = 586.126 million


62.80= 3.75 *1.09/r-0.09

cost of equity = 15.51%


63.902 = 2.6207 * PVIFA(r%,38) + 71.8 * PVIF(r%,38)

r = 4.24

after tax cost of debt1 = 2* 4.24 *(1-0.38) = 5.2576%


32.384 = 1.5272 * PVIFA(r%,22) + 36.8 * PVIF(r%,22)

r = 5.07

after tax cost of debt1 = 2* 5.07 *(1-0.38) = 6.2868%


WACC = (489.84/586.126) * 15.51 + (63.902/586.126) * 5.2576 + (32.384/586.126) * 6.2868

= 13.88%

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
1) Bonaime, Inc., has 7.9 million shares of common stock outstanding. The current share price is...
1) Bonaime, Inc., has 7.9 million shares of common stock outstanding. The current share price is $62.90, and the book value per share is $5.90. The company also has two bond issues outstanding. The first bond issue has a face value of $71.9 million, a coupon rate of 7.4 percent, and sells for 88.5 percent of par. The second issue has a face value of $36.9 million, a coupon rate of 8.4 percent, and sells for 87.5 percent of par....
Bonaime, Inc., has 6.2 million shares of common stock outstanding. The current share price is $61.20,...
Bonaime, Inc., has 6.2 million shares of common stock outstanding. The current share price is $61.20, and the book value per share is $4.20. The company also has two bond issues outstanding. The first bond issue has a face value of $70.2 million, a coupon rate of 7.2 percent, and sells for 97 percent of par. The second issue has a face value of $35.2 million, a coupon rate of 6.7 percent, and sells for 96 percent of par. The...
Bonaime, Inc., has 6.9 million shares of common stock outstanding. The current share price is $61.90,...
Bonaime, Inc., has 6.9 million shares of common stock outstanding. The current share price is $61.90, and the book value per share is $4.90. The company also has two bond issues outstanding. The first bond issue has a face value of $70.9 million, a coupon rate of 7.4 percent, and sells for 93.5 percent of par. The second issue has a face value of $35.9 million, a coupon rate of 7.4 percent, and sells for 92.5 percent of par. The...
Bonaime, Inc., has 6.7 million shares of common stock outstanding. The current share price is $61.70,...
Bonaime, Inc., has 6.7 million shares of common stock outstanding. The current share price is $61.70, and the book value per share is $4.70. The company also has two bond issues outstanding. The first bond issue has a face value of $70.7 million, a coupon rate of 7.2 percent, and sells for 94.5 percent of par. The second issue has a face value of $35.7 million, a coupon rate of 7.2 percent, and sells for 93.5 percent of par. The...
Bonaime, Inc., has 6.7 million shares of common stock outstanding. The current share price is $61.70,...
Bonaime, Inc., has 6.7 million shares of common stock outstanding. The current share price is $61.70, and the book value per share is $4.70. The company also has two bond issues outstanding. The first bond issue has a face value of $70.7 million, a coupon rate of 7.2 percent, and sells for 94.5 percent of par. The second issue has a face value of $35.7 million, a coupon rate of 7.2 percent, and sells for 93.5 percent of par. The...
Masterson, Inc., has 4 million shares of common stock outstanding. The current share price is $76,...
Masterson, Inc., has 4 million shares of common stock outstanding. The current share price is $76, and the book value per share is $7. The company also has two bond issues outstanding. The first bond issue has a face value of $105 million, has a coupon rate of 5 percent, and sells for 95 percent of par. The second issue has a face value of $90 million, has a coupon rate of 4 percent, and sells for 107 percent of...
Masterson, Inc., has 9 million shares of common stock outstanding. The current share price is $69,...
Masterson, Inc., has 9 million shares of common stock outstanding. The current share price is $69, and the book value per share is $8. The company also has two bond issues outstanding. The first bond issue has a face value of $70 million, has a coupon rate of 6 percent, and sells for 94 percent of par. The second issue has a face value of $55 million, has a coupon rate of 5 percent, and sells for 106 percent of...
Masterson, Inc., has 7 million shares of common stock outstanding. The current share price is $73,...
Masterson, Inc., has 7 million shares of common stock outstanding. The current share price is $73, and the book value per share is $8. The company also has two bond issues outstanding. The first bond issue has a face value of $90 million, has a coupon rate of 6 percent, and sells for 98 percent of par. The second issue has a face value of $75 million, has a coupon rate of 5 percent, and sells for 110 percent of...
Dinklage Corp. has 5 million shares of common stock outstanding. The current share price is $77,...
Dinklage Corp. has 5 million shares of common stock outstanding. The current share price is $77, and the book value per share is $8. The company also has two bond issues outstanding. The first bond issue has a face value of $110 million, a coupon rate of 6 percent, and sells for 94 percent of par. The second issue has a face value of $95 million, a coupon rate of 5 percent, and sells for 106 percent of par. The...
Dinklage Corp. has 6 million shares of common stock outstanding. The current share price is $66,...
Dinklage Corp. has 6 million shares of common stock outstanding. The current share price is $66, and the book value per share is $5. The company also has two bond issues outstanding. The first bond issue has a face value of $55 million, a coupon rate of 6 percent, and sells for 91 percent of par. The second issue has a face value of $40 million, a coupon rate of 5 percent, and sells for 103 percent of par. The...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT