Question

Use the information below on Milner Sisters Inc. to answer the problems below: Common Stock Milner...

Use the information below on Milner Sisters Inc. to answer the problems below: Common Stock Milner Sisters

has 50,000 shares of common stock outstanding at a market price of $28 a share. Currently, the firm has a beta of 1.13. The risk-free rate is 3% and the market rate of return is 10.5 %. Debt Outstanding bonds mature in 13 years; have a total face value of $750,000; a face value per bond of $1,000 and a market price of $1,011.92 each. The bonds pay 7% coupons, semi-annually. The tax rte is 34%. Preferred Stock The firm has 2,000 shares of 6% preferred stock outstanding at a price of $54 a share. The preferred stock has a par value of $100. What is Milner’s WACC? Identify all numbers and show all work.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Value of Equity = 50000*28 = 1,400,000
Cost of equity = Risk Free rate + Beta*( Cost of equity - Risk Free Rate) =3%+1.13*(10.5%-3%) = 11.48%

Value of debt = 1011.92*750000/1000 = 758940
Par Value =1000
Coupon = 7%*1000/2 = 35
Price = 1011.92
Number of Periods = 2*13 = 26
YTM using Excel Formula =2*RATE(26,35,-1011.92,1000) = 6.86%

Value of Preferred Stock = 2000*54 = 108000
Cost of Preferred Stock = 6%*100/54 = 11.11%

Total Value of firm = 1,400,000 + 758940 + 108000 = 2266940

WACC = Weight of Equity * Cost of Equity + Weight of Debt*Cost of Debt*(1-Tax Rate)+ Weight of Preferred Stock* Cost of Preferred Stock =  1400000/2266940 * 11.48% + 758940/2266940*6.86%*(1-34%) + 758940/2266940*11.11% = 12.32%

Please Discuss in case of doubt

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
What is ABC Inc.'s effective annual WACC given the following information? ABC has no outstanding preferred...
What is ABC Inc.'s effective annual WACC given the following information? ABC has no outstanding preferred stock ABC does not pay any dividends ABC has one issue of 10,000 bonds outstanding, each priced at $667.15. The bonds have a face value of $1000, pay semi-annual coupons at a rate of 9% APR compounded semi-annually, and mature in 15 years. The next coupon payment is 6-months from today. ABC has 1,000,000 common stock shares outstanding, each priced at $16 per share....
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...
City Rentals has 44,000 shares of common stock outstanding at a market price of $32 a...
City Rentals has 44,000 shares of common stock outstanding at a market price of $32 a share. The common stock just paid a $1.50 annual dividend and has a dividend growth rate of 2.5 percent. There are 7,500 shares of $9 preferred stock outstanding at a market price of $72 a share. The outstanding bonds mature in 11 years, have a total face value of $825,000, a face value per bond of $1,000, and a market price of $989 each,...
Kim's Bridal Shoppe has 12,200 shares of common stock outstanding at a price of $56 a...
Kim's Bridal Shoppe has 12,200 shares of common stock outstanding at a price of $56 a share. It also has 315 shares of preferred stock outstanding at a price of $90 a share. There are 380 bonds outstanding that have a 7.5 percent semiannual coupon. The bonds mature in six years, have a face value of $2,000, and sell at 112 percent of par. What is the capital structure weight of the common stock?
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
Kim's Bridal Shoppe has 11,400 shares of common stock outstanding at a price of $48 per...
Kim's Bridal Shoppe has 11,400 shares of common stock outstanding at a price of $48 per share. It also has 275 shares of preferred stock outstanding at a price of $90 per share. There are 300 bonds outstanding that have a coupon rate of 6.7 percent paid semiannually. The bonds mature in 29 years, have a face value of $2,000, and sell at 108 percent of par. What is the capital structure weight of the common stock?
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...
South firm has 30,000 shares of stock outstanding that are currently valued at $48 a share...
South firm has 30,000 shares of stock outstanding that are currently valued at $48 a share and provide a 13 percent rate of return. The firm also has 1000 bonds outstanding that have a face value of $1,000, a market price of $1,068, and a 7 percent coupon. These bonds mature in 6 years and pay interest semiannually. The tax rate is 35 percent. The company has 10000 shares of preferred stock with price $80 and return of 10% per...
East firm has 30,000 shares of stock outstanding that are currently valued at $48 a share...
East firm has 30,000 shares of stock outstanding that are currently valued at $48 a share and provide a 13 percent rate of return. The firm also has 1000 bonds outstanding that have a face value of $1,000, a market price of $1,068, and a 7 percent coupon. These bonds mature in 6 years and pay interest semiannually. The tax rate is 35 percent. The company has 10000 shares of preferred stock with price $80 and return of 10% per...
XYZ Industries has 6.5 million shares of common stock outstanding with a market price of $14...
XYZ Industries has 6.5 million shares of common stock outstanding with a market price of $14 per share. The company also has outstanding preferred stock with a market value of $10 million, and 25,000 bonds outstanding, each with face value $1,000 and selling at 90% of par value. The cost of equity is 14%, the cost of preferred is 10%, and the cost of debt is 7.25%. If XYZ's tax rate is 34%, what is the WACC? A) 9.5% B)...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT