Question

In: Finance

A company’s Balance Sheet (in millions)

Assets Liabilities & Equity

Current $120

Net Fixed $180 Bonds ($1000 Par) 130

Preferred stocks ($100 Par) 50

Total $200 Common Stock ($1 par) 20

Total $200

The company's bonds have 9 years to mature, pay 10% coupon rate semi-annually and comparable bonds' YTM is 11%.

The company’s applicable tax rate is 40%.

The market price of common stock is $12.50 per share.

The common stock dividend has grown at a steady rate from $0.68 in December 2000 to $1.48 in December 2010. The same growth rate is expected to continue for long time in the future.

The floatation cost for new common stocks is 15%.

The market value of the preferred stock is $75 and it pays quarterly dividend of $1.75.

The floatation cost on issuing new preferred stock is 7%

Next year is 2011.

What is the cost of issuing new common stock?

What is the cost of issuing new preferred stock?

Expert Solution

1)Number of years from 2000-2010 = 10 years

D10= D0 (1+g)^n

1.48 = .68 (1+g)^10

1.48/.68 = (1+g)^10

(2.17647)^1/10 = (1+g)

1.0809-1 = g

g = .0809 or8.09%

Cost of issuing new stock = [D10(1+g)/Price(1-F) ] + g

= [1.48(1+.0809)/12.5(1-.15)]+.0809

=[1.5997/10.625]+.0809

= .1506+.0809

= .2315 or 23.15%

b)cost of issuing new preferred stock = Annual dividend / price(1-F)

(1.75*4)/75(1-.07)

7/69.75

.1004 or 10.04%

jeff jeffy answered 2 years ago

A company’s Balance Sheet (in millions) Assets &nbs

A company’s Balance Sheet (in millions) Assets Liabilities & Equity Current $ 80 Net Fixed $120 Bonds ($1000 Par) 130 Preferred stocks ($100 Par) 40 Total $200 Common Stock ($1 par) 30 Total $200 The company's bonds have 10 years to mature, pay 10% coupon rate semi-annually and comparable bonds' YTM is 14%. The company’s applicable tax rate is 40%. The market price of common stock is $10.50 per share. The common stock is constantly growing at a rate of 6%. The same growth rate is expected to continue for...

The Verbrugge Publishing Company’s 2019 balance sheet and income statement are as follows (in millions of...

The Verbrugge Publishing Company’s 2019 balance sheet and income statement are as follows (in millions of dollars): Balance Sheet Current assets Net fixed assets Total assets Income Statement Net sales Operating expense $300 200 $500 Current liabilities Advance payments by customers Noncallable preferred stock, $6 coupon, $110 par value (1,000,000 shares) Callable preferred stock, $10 coupon, no par, $100 call price (200,000 shares) Common stock, $2 par value (5,000,000 shares) Retained earnings Total liabilities & equity $ 40 80 110...

A company’s Balance Sheet (in millions) Assets Liabilities & Equity Current $20 Net Fixed $80 Bonds...

A company’s Balance Sheet (in millions) Assets Liabilities & Equity Current $20 Net Fixed $80 Bonds ($1000 Par) 40 Preferred stocks ($100 Par) 20 Total $100 Common Stock ($1 par) 40 Total $100 The company's bonds have 15 years to mature, pay 12% coupon rate semi-annually and comparable bonds' YTM is 14%. The market price of the common stock is $3.25 per share. The most recent dividend on the common stock was $0.85. The company’s applicable tax rate is 30%....

Here is a simplified balance sheet for Locust Farming: Locust Farming Balance Sheet ($ in millions)...

Here is a simplified balance sheet for Locust Farming: Locust Farming Balance Sheet ($ in millions) Current assets $ 42,524 Current liabilities $ 29,755 Long-term assets 46,832 Long-term debt 27,752 Other liabilities 14,317 Equity 17,532 Total $ 89,356 Total $ 89,356 Locust has 657 million shares outstanding with a market price of $83 a share. a. Calculate the company’s market value added. (Enter your answers in millions.) b. Calculate the market-to-book ratio. (Round your answer to 2 decimal places.) c....

Hillside, Inc. BALANCE SHEET INCOME STATEMENT ($ in millions) ($ in millions) ASSETS LIABILITIES Revenue ...

Hillside, Inc. BALANCE SHEET INCOME STATEMENT ($ in millions) ($ in millions) ASSETS LIABILITIES Revenue 28,681.10 Cash & Marketable Securities 449.90 Accounts Payable 1,611.20 Cost Of Goods Sold 20,768.80 Accounts Receivable 954.80 Salaries Payable 225.20 Gross Profit 7,912.30 Inventories 3,645.20 Other Current Liabilities 1,118.80 Other Current Assets 116.60 Total Current Liabilities 2,955.20 Operating Expenses: Total Current Assets 5,166.50 Selling, General & Admin. 5,980.80 Other Liabilities 693.40...

3. Megalopolis Bank has the following balance sheet and income statement. Balance Sheet (in millions) Assets...

3. Megalopolis Bank has the following balance sheet and income statement. Balance Sheet (in millions) Assets | Liabilities and Equity Cash and due from banks $ 9,000 | Demand deposits $ 19,000 Investment securities 23,000 | NOW accounts 89,000 Repurchase agreements 42,000 | Retail CDs 28,000 Loans 90,000 | Debentures 19,000 Fixed assets 15,000 | Total liabilities $155,000 Other assets 4,000 | Common stock 12,000 Total assets $183,000 | Paid-in capital 4,000 | Retained earnings 12,000 | Total liabilities and...

Megalopolis Bank has the following balance sheet and income statement. Balance Sheet (in millions) Assets Liabilities...

Megalopolis Bank has the following balance sheet and income statement. Balance Sheet (in millions) Assets Liabilities and Equity Cash and due from banks $ 9,400 Demand deposits $ 23,000 Investment securities 27,000 NOW accounts 93,000 Repurchase agreements 46,000 Retail CDs 32,000 Loans 94,000 Debentures 23,000 Fixed assets 19,000 Total liabilities $ 171,000 Other assets 4,400 Common stock 12,000 Paid-in capital 4,000 Retained earnings 12,800 Total assets $ 199,800 Total liabilities and equity $ 199,800 Income Statement Interest on fees and...

The Balance Sheet for CVS Health Review your company’s balance sheet and please respond to the...

The Balance Sheet for CVS Health Review your company’s balance sheet and please respond to the following 3 questions: 1) Examine your company’s current, long-term, and intangible assets. Discuss the more significant ones for your company. Discuss any observable trends over recent fiscal years. 2) What were the company's primary liabilities as displayed on the balance sheet for the most recent fiscal year? Comment on the trend in total liabilities, both current and long-term. 3) Notes to the financial statements:...

An FI has the following Balance Sheet (in millions of dollars): Assets&nbs

An FI has the following Balance Sheet (in millions of dollars): Assets Liabilities and Equity Cash $40 Deposits $135 Loans $100 Equity $15 Securities $10 The FI is expecting a $50 million net deposit drain. Show the FI's new balance sheet if: The Stored Liquidity method is used to meet the liquidity shortfall The FI purchases liabilities to offset this expected drain.

Third Bank has the following balance sheet (in millions), with the risk weights in parentheses. ...

Third Bank has the following balance sheet (in millions), with the risk weights in parentheses. Assets Liabilities and Equity Cash (0%) K70 Deposits K175 OECD Interbank deposits (20%) K25 Subordinated debt (2.5 years) K3 Mortgage loans (50%) K70 Cumulative preferred stock K5 Consumer loans (100%) K20 Equity K2 Total Assets K185 Total Liabilities & Equity K185 The cumulative preferred stock is qualified and perpetual. In addition, the bank has K30 million in performance-related standby letters of credit (SLCs), K40 million in...