Question

Jospeh is considering to invest in the black stone Ltd. within currently has the following capital structure.

Debt:- $4500000 per value of outstanding bond that pays semi-annually 9% coupon rate with an annual before tax yield to maturity of 10%. The bond issue has face value of $1000 and will mature in 25 years.

Ordinary Shares:- 6500000 book value of outstanding ordinary shares. Nominal value of each share is $100. The firm just paid a $7.50 dividend per share last year and is experiencing a 4% annual growth rate in dividends, which the company expects to continue indefinition.

Preferred share :- 50,000 shares, 15% fixed dividend and market price of $115.39 each share.

The firm marginal tax rate is 30%.

Required: Help Josph to complete the following risk,

A) Calculate the current price of the corporate bond?

B) Calculate the current price of the ordinary share of the average return of the shares in the some industry is 12%.

C) Calculate the rate of return of the preferred share i.e. the face value of preferred share is $100.

D) Calculate the current total market value of firm.

E) Calculate the capital structure of the firm and identify the total weight of the equity trending.

F) Compute the weighted average cost of capital (WACC) under the traditional tax system for the firm, using dividend constant growth model calculation cost of equity of organization.    ( gave answer of full question with formula and without using excel)

Answer 1

As per rules I am answering the first 4 subparts of the question

A) Calculate the current price of the corporate bond?		$908.72
B) Calculate the current price of the ordinary share of the average return of the shares in the some industry is 12%.		97.5
Formula=D1/(k-g)
C) Calculate the rate of return of the preferred share i.e. the face value of preferred share is $100.		13.00%
Formula= Dividend/Share price
D) Calculate the current total market value of firm.		$16,196,241.68
Value of equity shares+Bond+preference shares

WORKINGS