Question
In: Accounting
Ardoin Enterprises has to determine its cost of capital using the following information: The firm has...
Ardoin Enterprises has to determine its cost of capital using the following information:
The firm has $40,000,000 in corporate bonds currently selling at 97.5. (Bonds sell at a percentage of par value) The bonds mature in 12 years and have an annual coupon rate of 6.9% paid semiannually. The firm faces a 32% tax rate and has 1,500,000 shares of preferred stock that pays a dividend of $0.80 per year and currently sells for $9.10 per share.
Common stock selling for $3.58 per share has just paid a dividend of $0.32 and is expected to grow by 4% forever. The firm has a beta of 1.42 and the risk-free rate on treasury securities is 2.25%. The average return on the S&P500 is 10.54%.
Calculate the cost of capital for the firm. Ardoin Enterprises has 25 million common shares outstanding.
Solutions
ekkarill92 answered 2 years agoRelated Solutions
Ardoin Enterprises has to determine its cost of capital using the following information: The firm has...
Ardoin Enterprises has to determine its cost of capital using
the following information:
The firm has $40,000,000 in corporate bonds currently selling at
97.5. (Bonds sell at a percentage of par value) The bonds mature in
12 years and have an annual coupon rate of 6.9% paid semiannually.
The firm faces a 32% tax rate and has 1,500,000 shares of preferred
stock that pays a dividend of $0.80 per year and currently sells
for $9.10 per share.
Common stock selling...
Calculate the weighted average cost of capital for a firm with the following information:
Calculate the weighted average cost of capital for a firm with
the following information:
Marginal corporate tax
rate:
25%
Bonds with $1,000 face value with a 6% coupon rate with semi-annual payments matures in 10 years now
sells
for
$928.94
Preferred stock
dividend
$5.50
Preferred stock
price
$55.00Current common stock dividend per
share
$1.50
Price per share of common
stock
$12.00
Floatation cost to sell new common
stock
...
Flagstaff Enterprises has an equity cost of capital of 13%, a debt cost of capital of...
Flagstaff Enterprises has an equity cost of capital of 13%, a
debt cost of capital of 7%, and a corporate tax rate of 35%. At
present, Flagstaff has a 0.80 debt-equity ratio and plans to
maintain it (at 0.80) in the future. Flagstaff expects to have a
free cash flow in the coming year of $8 million, and this free cash
flow is expected to grow at a rate of 3% per year thereafter
(forever).
a) Calculate the value of...
Compute the cost of capital for the firm for the following: a. A bond that has...
Compute the cost of capital for the firm for the following:
a. A bond that has a $1,000 par value (face value) and a
contract or coupon interest rate of 11.1%. Interest payments are
$55.50 and are paid semiannually. The bonds have a current market
value of $1,130 and will mature in 10 years. The firm's marginal
tax rate is 34%. What is the after-tax cost of debt?
b. A new common stock issue that paid a $1.76 dividend last...
Scott Enterprises is considering a project that has the following cash flow and cost of capital...
Scott Enterprises is considering a project that has the
following cash flow and cost of capital (r) data. What is the
project's NPV? Note that if a project's expected NPV is negative,
it should be rejected.
r:
11.00%
Year
0
1
2
3
4
Cash flows
−$1,000
$350
$350
$350
$350
Reed Enterprises is considering a project that has the following
cash flow and cost of capital (r) data. What is the project's NPV?
Note that a project's expected NPV...
reed enterprises is considering a project that has the following cash flow and cost of capital...
reed enterprises is considering a project that has the following
cash flow and cost of capital (r) data. What is the project NPV?
note that a projects expected NPV can be negative, in which case it
will be rejected.
R: 11.00%
Year 0 1 2 3
CF -1,065 $500 $475 $450
A firm has estimated its cost of capital as 5% and is considering a project with...
A firm has estimated its cost of capital as 5% and is
considering a project with an initial investment of -$265,000. The
subsequent cash flows are $65,000; $77,000; $83,000; $91,000; and
$96,000. In the final year (year #6), the firm must pay $50,000 to
clean up the site. Calculate the project’s MIRR using the three
methods discussed in class. Please provide timelines, a description
of all of your math, and calculator inputs.
Lang Enterprises is interested in measuring its overall cost of capital. Current investigation has gathered the...
Lang Enterprises is interested in measuring its overall cost of
capital. Current investigation has gathered the following
data. The firm is in the 30% tax bracket.
DEBT: The firm can raise debt by selling $1,000 par value, 9%
coupon interest rate, 17 year bonds on which annual interest
payments will be made. To sell the issue, an average
discount of $25 per bond would have to be given. The firm also must
pay flotation costs of $15 per bond.
PREFERRED STOCK: The...
Lang Enterprises is interested in measuring its overall cost of capital. Current investigation has gathered the...
Lang Enterprises is interested in measuring its overall cost of
capital. Current investigation has gathered the following data. The
firm is in the 21% tax bracket. Debt: The firm can raise debt by
selling 1,000-par-value, 8% coupon interest rate, 20-year bonds
on which annual interest payments will be made. To sell the issue,
an average discount of $30 per bond would have to be given. The
firm also must pay flotation costs of $30 per bond. Preferred
stock: The firm...
Lang Enterprises is interested in measuring its overall cost of capital. Current investigation has gathered the...
Lang Enterprises is interested in measuring its overall cost of
capital. Current investigation has gathered the following data. The
firm is in the 21% tax bracket.
Debt: The firm can raise debt by selling 1,000-par-value, 8%
coupon interest rate, 20-year bonds on which annual interest
payments will be made. To sell the issue, an average discount
of
$30 per bond would have to be given. The firm also must pay
flotation costs of $30 per bond.
Preferred stock: The firm...
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