Question

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 tax cost of debt, 3. cost of equity, 4. WACC). Do not use excel.

Answer #1

The market value of equity, E = 2,000,000 * 3 = $6,000,000

The market value of debt, d = 2,500 * 1,600 = $4,000,000

The weight of equity, We = 6,000,000/(6,000,000 + 4,000,000)

We = 0.60

The weight of debt, Wd = 4,000,000/(6,000,000 + 4,000,000)

Wd = 0.40

Cost of debt:

N = 20

FV = 1,000

PMT = 1,000 * 0.10 = 100

PV = -1,600

CPT I/Y

I/Y = 5.131583%

The cost of debt = 5.131583%

Cost of equity:

re = 0.06 + 1.4 * 0.08

re = 0.172

re = 17.2%

A firm has 14 million shares of common stock outstanding with a
beta of 1.15 and a market price of $42 a share. The 10 percent
semiannual bonds are selling at 91 percent of par/face value. There
are 220,000 bonds outstanding that mature in 17 years. The market
risk premium is 6.75 percent, T-bills are yielding 3.5 percent, and
the firm's tax rate is 32 percent.
1. What is the firms cost of Equity? by using CAPM
2. What is...

Bell Media has common stock trading at a price of $74, and a
market capitalization of $23 billion. The firm also has preferred
stock worth a total of $6 billion, currently trading at $54 per
share and paying a dividend of $4.50 per share. The firm's beta is
1.2, the risk-free rate is 2.4%, and the market risk premium is 6%.
The firm has $28 billion of debt outstanding. Its bonds with the
face value of $10,000 and semi-annual 5%...

A company has 3 million shares outstanding at a market price of
$1.50 each. The company's bonds have a total market value of
$2,700,000, have a coupon rate of 3% p.a. and currently yield 4%
p.a. The current market value of preference shares is $500,000 and
currently return 5% p.a. The company has a beta of 0.7, the market
risk premium is 6% p.a., the risk-free return is 2% p.a., and the
company tax rate is 30%,
What is the...

A company has 3 million shares outstanding at a market price of
$1.50 each. The company's bonds have a total market value of
$2,700,000, have a coupon rate of 3% p.a. and currently yield 4%
p.a. The current market value of preference shares is $500,000 and
currently return 5% p.a. The company has a beta of 0.7, the market
risk premium is 6% p.a., the risk-free return is 2% p.a., and the
company tax rate is 30%,
What is the...

A company has 3 million shares outstanding at a market price of
$1.50 each. The company's bonds have a total market value of
$2,700,000, have a coupon rate of 3% p.a. and currently yield 4%
p.a. The current market value of preference shares is $500,000 and
currently return 5% p.a. The company has a beta of 0.7, the market
risk premium is 6% p.a., the risk-free return is 2% p.a., and the
company tax rate is 30%,
What is the...

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,...

There are 2 million common shares of stock outstanding,
currently trading for $35 per share.
The most recent dividend paid was $4 per share.
Dividends are expected to increase by 2% per year for the
foreseeable future.
There are 25,000 bonds outstanding with a coupon rate of 5% that
mature in eight years. The face value of these bonds is $1000,
coupon payments are made annually, and the yield to maturity is
4%.
There are 75,000 bonds outstanding with a...

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...

A company has
400,000 shares of common stock outstanding at a market price of $25
a share and a Beta of 0.72. This stock just paid an annual dividend
of $1.10 a share (D0). The dividend is expected to grow
3 percent annually. The firm also has 50,000 shares of 6.5 percent
preferred stock with a market value of $60 a share. The preferred
stock has a par value of $100. The company has $3.5 million of face
value bonds...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 2 minutes ago

asked 51 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 3 hours ago

asked 3 hours ago

asked 3 hours ago

asked 3 hours ago

asked 3 hours ago