Question

Company X has 8 million shares of common stock outstanding. The current share price is $57, 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 $70.8 million and a coupon rate of 7 percent and sells for 107 percent of par. The second issue has a face value of $60 million and a coupon rate of 7 percent and sells for 109 percent of par. The first issue matures in 9 years, the second in 26 years. |

Suppose the company’s stock has a beta of 1.3. The risk-free rate is 3 percent, and the market risk premium is 7 percent. Assume that the overall cost of debt is the weighted average implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 40 percent. What is the company’s WACC? (9 points) |

Answer #1

Company X has 8 million shares of common stock outstanding. The
current share price is $57, 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 $70.8 million and a coupon rate of 7 percent
and sells for 107 percent of par. The second issue has a face value
of $60 million and a coupon rate of 7 percent and sells for 109
percent of...

Filer Manufacturing has 8.3 million shares of common stock
outstanding. The current share price is $53. The company also has
two bond issues outstanding. The first bond issue has a face value
of $70 million and a coupon rate of 7 percent and sells for 108.3
percent of par. The second issue has a face value of $60 million
and a coupon rate of 7.5 percent and sells for 108.9 percent of
par. The first issue matures in 8 years,...

Hero Manufacturing has 8 million shares of common stock
outstanding. The current share price is $82 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 $70 million, a coupon rate of
6.8 percent and sells for 107.5 percent of par. The second issue
has a face value of $50.8 million, a coupon rate of 7.3 percent and
sells for 111.3 percent of par. The...

Ten
pins manufacturing has 7.3 million shares of common stock
outstanding. The current share price is $43 and book value per
share is $3. The company also has two bond issues outstanding. The
first bond issue has a face value of $68 million and a coupon rate
of 6 percent and sells for 109.3 percent of par. The second issue
has a face value of $58 million and a coupon rate of 6.5 percent
and sells for 106.9 percent of...

Hero Manufacturing has 7.9 million shares of common stock
outstanding. The current share price is $83 and the book value per
share is $4. The company also has two bond issues outstanding. The
first bond issue has a face value of $65 million, a coupon rate of
6.7 percent and sells for 107.3 percent of par. The second issue
has a face value of $45.8 million, a coupon rate of 7.2 percent and
sells for 111.1 percent of par. The...

Hero Manufacturing has 8.9 million shares of common stock
outstanding. The current share price is $73 and the book value per
share is $6. The company also has two bond issues outstanding. The
first bond issue has a face value of $65 million, a coupon rate of
6.3 percent and sells for 109.3 percent of par. The second issue
has a face value of $52.8 million, a coupon rate of 8.2 percent and
sells for 113.1 percent of par. The...

Hero Manufacturing has 9 million shares of common stock
outstanding. The current share price is $72 and the book value per
share is $3. The company also has two bond issues outstanding. The
first bond issue has a face value of $70 million, a coupon rate of
6.4 percent and sells for 109.5 percent of par. The second issue
has a face value of $57.8 million, a coupon rate of 8.3 percent and
sells for 113.3 percent of par. The...

9
Hero Manufacturing has 9.1 million shares of common stock
outstanding. The current share price is $71 and the book value per
share is $4. The company also has two bond issues outstanding. The
first bond issue has a face value of $75 million, a coupon rate of
6.5 percent and sells for 109.7 percent of par. The second issue
has a face value of $62.8 million, a coupon rate of 8.4 percent and
sells for 113.5 percent of par....

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...

Dinklage Corp. 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, a coupon rate of 6 percent,
and sells for 94 percent of par. The second issue has a face value
of $55 million, a coupon rate of 5 percent, and sells for 106
percent of par. The...

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