Question

ABC co. has one debt issue outstanding it is an annual 9.5% coupon bond with a face value of 120 million a maturity of 8 years and it sells at par value the company also has 7 million shares outstanding trading at 50 each suppose you belıeve that th company beta ıs 1.5 the risk free rate is 4% and the market risk premium is 8% of the firms tax rate is 25 what is the weighted average cost of capital?

PLEASE DO NOT SOLVE WİTH EXCELL CHART proffesor do not accept

Answer #1

Since bond is sold at par hence YTM and Coupon Rate are Same

Cost of Debt =9.5%

Value of Debt = 120 million

Cost of equity using CAPM model = Risk Free Rate + Beta * Market
risk Premium = 4% + 1.5*8% =16%

Value of Equity =Price*Number of Shares = 50*7 = 350

Total Value of firm =Value of debt + value of equity =120+350 =
470

WACC = Weight of Equity * Cost of Equity + weight of Debt* Cost of
Debt*(1-Tax rate) =350/470*16%+120/470*9.5%*(1-25%) =13.73%

Hence WACC = 13.73%

The ABC. Inc . has 2.8 million shares of stock
outstanding . The stock currently sells for $20 per share . The
firm debt publicly traded and was recently quoted at 94% of face
value . It has a total face value of $ 10 million and it is
currently priced to yield 10% .The risk -free rate is 8% and the
market risk premium is 7% . You have estimated that the company has
a beta of 0.74 ....

ABC Company has 1.4 million shares outstanding and is currently
sold at $20 per share. The company’s debt is currently traded at 93
percent face value, and has a face value of $5 million. The shares
are currently priced to yield 11 percent. Government Treasury bills
carries a risk-free rate of 8 percent and the market risk premium
is 7 percent. With a company beta of 0.74 and a corporate tax rate
of 34 percent, what it’s the WACC of...

A company has an outstanding issue of $1,000 face value bonds
with a 9.5% annual coupon and 20 years remaining until maturity.
The bonds are currently selling at a price of 90 (90% of face
value). An investment bank has advised that a new 20-year issue
could be sold for a flotation cost of 5% of face value. The company
is in the 35% tax bracket.
a. Calculate investors’ required rate of return today.
b. What annual coupon would have...

Havertown Audio has an outstanding bond issue with an total par
value of $100 million. The bonds are selling at a quoted price of
110% of par value and have a yield to maturity of 5.65%. The
company also has 8 million shares of common stock outstanding. The
stock has a beta of 1.3 and sells for $30 per share. The yield on
10 year U.S. Treasury bonds is 3% and the market risk premium is
7%. Havertown Audio has...

Great Lakes Packing has two bond issues outstanding. The first
issue has a coupon rate of 3.74 percent, a par value of $1,000 per
bond, matures in 8 years, has a total face value of $4.8 million,
and is quoted at 105 percent of face value. The second issue has a
coupon rate of 6.51 percent, a par value of $1,000 per bond,
matures in 18 years, has a total face value of $9.1 million, and is
quoted at 103...

Consider the following capital structure for AAA Corporation.
The company has one debt issue, preferred stock and common stock in
its capital structure. The firm’s tax rate is 40%; the risk-free
rate is 3%.
Details on the components of the capital structure are listed
below.
Bond issue:
Preferred equity:
Common equity:
Coupon-paying issue
$100 million par
10% semiannual coupon
Remaining maturity of 15 years
Currently priced in market at 90% of par value
Coupon-paying issue
$50 million par
6% annual...

Olympic Sports has two issues of debt outstanding. One is an 8%
coupon bond with a face value of $36 million, a maturity of 15
years, and a yield to maturity of 9%. The coupons are paid
annually. The other bond issue has a maturity of 20 years, with
coupons also paid annually, and a coupon rate of 9%. The face value
of the issue is $41 million, and the issue sells for 95% of par
value. The firm's tax...

Olympic Sports has two issues of debt outstanding. One is a 7%
coupon bond with a face value of $37 million, a maturity of 10
years, and a yield to maturity of 8%. The coupons are paid
annually. The other bond issue has a maturity of 15 years, with
coupons also paid annually, and a coupon rate of 8%. The face value
of the issue is $42 million, and the issue sells for 96% of par
value. The firm's tax...

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...

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,...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 52 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago