Question

The Wildhorse Products Co. currently has debt with a market value of $200 million outstanding. The debt consists of 9 percent coupon bonds (semiannual coupon payments) which have a maturity of 15 years and are currently priced at $1,434.63 per bond. The firm also has an issue of 2 million preferred shares outstanding with a market price of $16 per share. The preferred shares pay an annual dividend of $1.20. Wildhorse also has 14 million shares of common stock outstanding with a price of $20.00 per share. The firm is expected to pay a $2.20 common dividend one year from today, and that dividend is expected to increase by 5 percent per year forever. If Wildhorse is subject to a 40 percent marginal tax rate, then what is the firm’s weighted average cost of capital?

Calculate the weights for debt, common equity, and preferred equity. (Round intermediate calculations and final answers to 4 decimal places, e.g. 1.2514.)

Debt:

Common Equity:

Preferred equity:

Calculate the cost of debt. *(Round intermediate
calculations to 4 decimal places, e.g. 1.2514 and final answer to 2
decimal places, e.g. 15.25%.)*

Calculate the cost of preferred equity. **(Round
intermediate calculations to 4 decimal places, e.g. 1.2514 and
final answer to 2 decimal places, e.g. 15.25%.)**

Calculate the cost of common equity. **(Round
intermediate calculations to 4 decimal places, e.g. 1.2514 and
final answer to 0 decimal places, e.g. 15%.)**

What is the firm’s weighted average cost of capital?
*(Round intermediate calculations to 4 decimal places,
e.g. 1.2514 and final answer to 2 decimal places, e.g.
15.25%.)*

Answer #1

The Wildhorse Products Co. currently has debt with a market
value of $200 million outstanding. The debt consists of 9 percent
coupon bonds (semiannual coupon payments) which have a maturity of
15 years and are currently priced at $1,434.63 per bond. The firm
also has an issue of 2 million preferred shares outstanding with a
market price of $16 per share. The preferred shares pay an annual
dividend of $1.20. Wildhorse also has 14 million shares of common
stock outstanding...

The Oriole Products Co. currently has debt with a market value
of $275 million outstanding. The debt consists of 9 percent coupon
bonds (semiannual coupon payments) which have a maturity of 15
years and are currently priced at $1,429.26 per bond. The firm also
has an issue of 2 million preferred shares outstanding with a
market price of $14 per share. The preferred shares pay an annual
dividend of $1.20. Oriole also has 14 million shares of common
stock outstanding...

The Oriole Products Co. currently has debt with a market value
of $275 million outstanding. The debt consists of 9 percent coupon
bonds (semiannual coupon payments) which have a maturity of 15
years and are currently priced at $1,423.92 per bond. The firm also
has an issue of 2 million preferred shares outstanding with a
market price of $13 per share. The preferred shares pay an annual
dividend of $1.20. Oriole also has 14 million shares of common
stock outstanding...

The Imaginary Products Co. currently has debt with a market
value of $275 million outstanding. The debt consists of 9 percent
coupon bonds (semiannual coupon payments) which have a maturity of
15 years and are currently priced at $1,392.42 per bond. The firm
also has an issue of 2 million preferred shares outstanding with a
market price of $11. The preferred shares pay an annual dividend of
$1.20. Imaginary also has 14 million shares of common stock
outstanding with a...

You are analyzing the after-tax cost of debt for a firm. You
know that the firm’s 12-year maturity, 10.00 percent semiannual
coupon bonds are selling at a price of $846.68. These bonds are the
only debt outstanding for the firm. What is the current YTM of the
bonds? (Round final answer to 2 decimal places, e.g. 15.25%.)
What is the after-tax cost of debt for this firm if it has a
marginal tax rate of 34 percent? (Round intermediate
calculations...

Hankins Corporation has 7.9 million shares of common stock
outstanding, 540,000 shares of 7.4 percent preferred stock
outstanding, and 179,000 of 8.6 percent semiannual bonds
outstanding, par value $1,000 each. The common stock currently
sells for $64.40 per share and has a beta of 1.24, the preferred
stock has a par value of $100 and currently sells for $107.60 per
share, and the bonds have 13 years to maturity and sell for 94
percent of par. The market risk premium...

Capital Co. has a capital structure, based on current market
values, that consists of 37 percent debt, 11 percent preferred
stock, and 52 percent common stock. If the returns required by
investors are 12 percent, 13 percent, and 15 percent for the debt,
preferred stock, and common stock, respectively, what is Capital’s
after-tax WACC? Assume that the firm’s marginal tax rate is 40
percent. (Round intermediate calculations to 4 decimal
places, e.g. 1.2514 and final answer to 2 decimal places,...

Hatter, Inc., has equity with a market value of $23.1 million
and debt with a market value of $9.24 million. The cost of debt is
10 percent per year. Treasury bills that mature in one year yield 6
percent per year, and the expected return on the market portfolio
over the next year is 11 percent. The beta of the company’s equity
is 1.16. The firm pays no taxes.
a. What is the company’s debt−equity ratio?
(Do not round intermediate...

Penn Lab Co. has common stocks with a market value of
$5,350,000.00 and has outstanding debt with a market value of
$2,960,000.00. The rate of return on the stock is 13.45% and the
Yield-to-Maturity on the debt is 9.60%. Answer the following
questions if the tax rate is 32.00%! a. What is the Firm Value?
b. What is the firm's capital structure weights? Note: Do not
round your intermediate calculations and enter your final answers
as rounded to 4 decimal...

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...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 5 minutes ago

asked 7 minutes ago

asked 7 minutes ago

asked 14 minutes ago

asked 18 minutes ago

asked 24 minutes ago

asked 26 minutes ago

asked 26 minutes ago

asked 50 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago