Question

Western Electric has 35,000 ordinary shares outstanding at a price per share of $47 and a rate of return of 13.5%. The firm has 5,000 preference shares paying 7% dividend outstanding at a price of $58 a share. The preferred share has a par value of $100. The outstanding bond has a total face value of $450,000 and currently sells for 102% of face. The pre-tax yield-to-maturity on the bond is 8.49%. Required: a) Calculate the total market value of the firm. b) Calculate the capital structure of the firm. (Please round up the result at 3 decimal places) c) Calculate the firm's weighted average cost of capital if the tax rate is 30%, assuming a classical tax system.

Answer #1

Western Electric has 23,000 shares of common stock outstanding
at a price per share of $57 and a rate of return of 14.2 percent.
The firm has 6,000 shares of 7 percent preferred stock outstanding
at a price of $48 a share. The preferred stock has a par value of
$100. The company also has 350 corporate bonds, each with $1000 par
value, and the bond currently sells for 102 percent of face. The
yield-to-maturity on the debt is 8.49...

Western Electric has 27,500 shares of common stock outstanding
at a price per share of $70 and a rate of return of 13.45 percent.
The firm has 6,850 shares of 6.90 percent preferred stock
outstanding at a price of $90.50 per share. The preferred stock has
a par value of $100. The outstanding debt has a total face value of
$377,000 and currently sells for 106.5 percent of face. The yield
to maturity on the debt is 7.81 percent. What...

Allen’s Authentic Automotive has 90,000 ordinary shares
outstanding (with a beta of 1.13) which are currently selling at
$72.00 per share. The rate of return required by ordinary
shareholders is 12.00%. The firm also has 35,000, preference shares
outstanding with a current market price of $54 a share. The
preference shares have a book value of $100 each and have a rate of
return of X.XXX% [last four digits of your student ID*] . There are
currently 4,500 bonds outstanding...

Dinklage Corp. has 8.1 million shares of common stock
outstanding. The current share price is $47, 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, has a 7 percent
coupon, and sells for 94 percent of par. The second issue has a
face value of $54.27 million, has a 7 percent coupon, and sells for
98 percent of par. The first issue...

Saint Nick Enterprises has 19,500 shares of common stock
outstanding at a price of $79 per share. The company has two bond
issues outstanding. The first issue has 8 years to maturity, a par
value of $2,000 per bond, and sells for 96.5 percent of par. The
second issue matures in 22 years, has a par value of $1,000 per
bond, and sells for 95.5 percent of par. The total face value of
the first issue is $350,000, while the...

Rumolt Motors has 38 million shares outstanding with a share
price of $ 43 per share. In addition, Rumolt has issued bonds with
a total current market value of $ 1 comma 975 million. Suppose
Rumolt's equity cost of capital is 14 %, and its debt cost of
capital is 5 %.
a. What is Rumolt's pre-tax WACC?
b. If Rumolt's corporate tax rate is 30 %, what is its
after-tax WACC?

17. Rumolt Motors has 25 million shares outstanding with a share
price of $28 per share. In addition, Rumolt has issued bonds with
a total current market value of $192 million. Suppose Rumolt's
equity cost of capital is 14%, and its debt cost of capital is
7%.
a. What is Rumolt's pre-tax WACC?
b. If Rumolt's corporate tax rate is 21%, what is its after-tax
WACC?

Rumolt Motors has
7575
million shares outstanding with a share price of
$ 60$60
per share. In addition, Rumolt has issued bonds with a total
current market value of
$ 4 comma 221$4,221
million. Suppose Rumolt's equity cost of capital is
10 %10%,
and its debt cost of capital is
7 %7%.
a. What is Rumolt's pre-tax WACC?
b. If Rumolt's corporate tax rate is
30 %30%,
what is its after-tax WACC?

Cotton On Ltd. currently has the following capital structure:
Debt: $3,500,000 par value of outstanding bond that pays annually
10% coupon rate with an annual before-tax yield to maturity of 12%.
The bond issue has face value of $1,000 and will mature in 20
years. Ordinary shares: $5,500,000 book value of outstanding
ordinary shares. Nominal value of each share is $100. The firm plan
just paid a $8.50 dividend per share. The firm is maintaining 4%
annual growth rate in...

18.2
Acort Industries has 11 million shares outstanding and a current
share price of $47 per share. It also has long-term debt
outstanding. This debt is risk free, is four years away from
maturity, has an annual coupon rate of 7% , and has a $116 million
face value. The first of the remaining coupon payments will be due
in exactly one year. The riskless interest rates for all maturities
are constant at 4.2%. Acort has EBIT of $104 million,...

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