Question

A firm has 12,500 shares of stock outstanding that sell for $40 each. The book value...

A firm has 12,500 shares of stock outstanding that sell for $40 each. The book value of equity is $200,000. The firm has also issued $300,000 face value of 10-year annual coupon bond with a 4% coupon rate. The yield-to-maturity of this bond is 7%. There is a comparable stock currently trading at $41.67, with next year's dividend forecast of $5, and a constant-growth rate of 3%. The tax rate is 21%.
a) What are the market values of the firm's bond and equity?
b) What are the estimates of the firm's cost of debt and cost of equity?
c) What is the WACC for this firm?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A firm has 12,000 shares of common stock outstanding with a book value of $20 per...
A firm has 12,000 shares of common stock outstanding with a book value of $20 per share and a market value of $39. There are 5,000 shares of preferred stock with a book value of $22 and a market value of $26. There is a $400,000 face value bond issue outstanding that is selling at 87% of par. What weight should be placed on the preferred stock when computing the firm's WACC? Please show all work
The total book value of WTC's equity is $13 million, and book value per share is...
The total book value of WTC's equity is $13 million, and book value per share is $20. The stock has a market-to-book ratio of 1.5, and the cost of equity is 9%. The firm's bonds have a face value of $9 million and sell at a price of 110% of face value. The yield to maturity on the bonds is 6%, and the firm's tax rate is 40%. What is the company's WACC?
A firm has 40,000 shares whose current price is $80.75. Those stockholders expect a return of...
A firm has 40,000 shares whose current price is $80.75. Those stockholders expect a return of 15%. The firm has a 2-year loan of $900,000 at 6.4%. It has issued 12,500 bonds with a face value of 1000, 15 years left to maturity, semiannual compounding, a coupon interest rate of 6%, and a current price of $1090. Using market values for debt and equity, what is the firm's cost of capital after taxes with a tax rate of 40%, as...
A firm has 2,000,000 shares of common stock outstanding with a market price today of $3.00...
A firm has 2,000,000 shares of common stock outstanding with a market price today of $3.00 each. It has 2,500 bonds outstanding, each with a market value today of $1,600 (160% of face). The bonds mature in 20 years, have a coupon rate of 10%, and pay coupons annually. The firm's beta is 1.4, the risk-free rate is 6%, and the market risk premium is 8%. The tax rate is 40%. Compute the WACC. (Hint, calculate: 1. weights, 2. after...
R.S. Green has 250,000 shares of common stock outstanding at a market price of $28 a...
R.S. Green has 250,000 shares of common stock outstanding at a market price of $28 a share. Next year's annual dividend is expected to be $1.55 a share. The dividend growth rate is 2 percent. The firm also has 7,500 bonds outstanding with a face value of $1,000 per bond. The yield to maturity that bonds of this category generally earn is 9.5%. The company's tax rate is 34 percent. What is the firm's weighted average cost of capital?
Your firm has 500,000 shares of common stock outstanding and 100,000 bonds outstanding. The firm has...
Your firm has 500,000 shares of common stock outstanding and 100,000 bonds outstanding. The firm has a required rate of return of 14%, the next annual dividend is SS and dividends are expected to grow at 8%. The bonds mature in 15 years, pay annual coupons with a 5% coupon rate, have a face value of $1000, and a yield to maturity of 7%. a) Compute the price per share based on the dividend model b) Compute the bond price...
A corporation has 9,000,000 shares of stock outstanding at a price of $40 per share. They...
A corporation has 9,000,000 shares of stock outstanding at a price of $40 per share. They just paid a dividend of $2 and the dividend is expected to grow by 5% per year forever. The stock has a beta of .9, the current risk free rate is 4%, and the market risk premium is 6%. The corporation also has 300,000 bonds outstanding with a price of $1,100 per bond. The bond has a coupon rate of 8% with semiannual interest...
Suppose a firm has 49.00 million shares of common stock outstanding at a price of $13.80...
Suppose a firm has 49.00 million shares of common stock outstanding at a price of $13.80 per share. The firm also has 410000.00 bonds outstanding with a current price of $1,056.00. The outstanding bonds have yield to maturity 6.31%. The firm's common stock beta is 2.33 and the corporate tax rate is 38.00%. The expected market return is 9.11% and the T-bill rate is 1.74%. Compute the following:     -Weight of Equity of the firm?     -Weight of Debt of...
suppose a firm has 42 million shares of common stock outstanding at a price of $50...
suppose a firm has 42 million shares of common stock outstanding at a price of $50 per share. The firm also has 300,000 bonds outstanding with a current price of $1006.30. The outstanding bonds have yield to maturity 9.6% The firm's common stock beta is 1.6 and the corporate tax rate is 35%. The expected market return is 13% and teh T-bill rate is 2%. What is the WACC for this firm?
Suppose a firm has 17.30 million shares of common stock outstanding at a price of $12.87...
Suppose a firm has 17.30 million shares of common stock outstanding at a price of $12.87 per share. The firm also has 156000.00 bonds outstanding with a current price of $1,139.00. The outstanding bonds have yield to maturity 8.00%. The firm's common stock beta is 2.306 and the corporate tax rate is 37.00%. The expected market return is 10.09% and the T-bill rate is 4.40%. Compute the following: a) Weight of Equity of the firm b) Weight of Debt of...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT