Question

In: Accounting

Common stock: 265,000 shares of common stock selling for $76 per share. The stock has a...

Common stock: 265,000 shares of common stock selling for $76 per share. The stock has a beta of 0.92 and will pay a dividend of $2.48 next year. The dividend is expected to grow by 4 percent per year indefinitely.

Preferred stock: 7,500 shares of 6 percent preferred stock (par value $100) selling at $88 per share.

Debt: 8,500 units of 7.1 percent coupon bonds outstanding, with 14 years to maturity and a quoted price of 102.6%. These bonds pay interest semi-annually.

Market: A 13.2 percent expected return, a 4.5 percent risk-free rate, and a 34 percent tax rate.

REQUIRED: (a)

Calculate the market value of common stock, preferred stock, bond and the total market value of the firm.

(b)

Calculate the cost of common stock using Constant Dividend Growth Model (CDGM) and Capital Assets Price Model (CAPM) respectively. What is the average cost of common stock based on these two models?

(c)

Calculate the cost of preferred stock.

(1 mark)

(d)

Calculate: (i) cost of debt before tax; and (ii) cost of debt after tax.

(e)

Calculate the weight of common stock (we), the weight of preferred stock (wp) and the weight of debt (wd) with respect to the total capital.

(f)

Calculate the weighted average of cost of capital (WACC).

Solutions

Expert Solution

ekkarill92 answered 2 years ago
Next > < Previous

Related Solutions

TAFKAP Industries has three million shares of common stock outstanding selling at $17 per share. The...
TAFKAP Industries has three million shares of common stock outstanding selling at $17 per share. The company recently paid a dividend of $1 and has a growth rate of 5%. The company also has an issue of $20 million (face value) in 7.5 percent, annual coupon bonds with a maturity of 15 years, selling at $1060. The company has no preferred stock. If TAFKAP’s weighted average tax rate is 34 percent, what is TAFKAP’s WACC?
Delta Tech Corporation’s common shares are currently selling on a stock exchange at $74.50 per share,...
Delta Tech Corporation’s common shares are currently selling on a stock exchange at $74.50 per share, and a recent balance sheet shows the following information: Delta Tech Corporation Equity Section of Balance Sheet April 30, 2017   Contributed capital:      Preferred shares, $2.50 cumulative, 2,000 shares authorized,        issued and outstanding $ 184,000     Common shares, 8,000 shares authorized, issued, and outstanding 256,000      Total contributed capital $ 440,000   Retained earnings 400,000   Total equity $ 840,000 Required: Preparation Component: 1. What is the market...
Titan Mining Corporation has 7.3 million shares of common stock outstanding, 265,000 shares of 4.5 percent...
Titan Mining Corporation has 7.3 million shares of common stock outstanding, 265,000 shares of 4.5 percent preferred stock outstanding, and 150,000 bonds with a coupon rate of 5.4 percent outstanding, par value $1,000 each. The common stock currently sells for $64 per share and has a beta of 1.20. The preferred stock has a par value of $100 and currently sells for $92 per share. The bonds have 16 years to maturity, pay semiannual coupons, and sell for 106 percent...
Titan Mining Corporation has 7.3 million shares of common stock outstanding, 265,000 shares of 4.5 percent...
Titan Mining Corporation has 7.3 million shares of common stock outstanding, 265,000 shares of 4.5 percent preferred stock outstanding, and 150,000 bonds with a semiannual coupon rate of 5.4 percent outstanding, par value $2,000 each. The common stock currently sells for $64 per share and has a beta of 1.20, the preferred stock has a par value of $100 and currently sells for $92 per share, and the bonds have 16 years to maturity and sell for 106 percent of...
TAFKAP Industries has 2 million shares of stock outstanding selling at $16 per share, and an...
TAFKAP Industries has 2 million shares of stock outstanding selling at $16 per share, and an issue of $12 million in 8.0 percent annual coupon bonds with a maturity of 15 years, selling at 105 percent of par. Assume TAFKAP’s weighted average tax rate is 21 percent, it can make full use of the interest tax shield, and its cost of equity is 14.0 percent. What is TAFKAP’s WACC? (Do not round intermediate calculations. Round your final answer to 2...
AFKAP Industries has 2 million shares of stock outstanding selling at $13 per share, and an...
AFKAP Industries has 2 million shares of stock outstanding selling at $13 per share, and an issue of $12 million in 8.5 percent annual coupon bonds with a maturity of 20 years, selling at 107 percent of par. Assume TAFKAP’s weighted average tax rate is 34 percent and its cost of equity is 13.0 percent. What is TAFKAP’s WACC?
Falcons Footwear has 12 million shares of common stock selling for $60/share with a required return...
Falcons Footwear has 12 million shares of common stock selling for $60/share with a required return of 9.2 percent. They have 2 million shares of preferred stock selling for $85/share with a required return of 8.82 percent. Finally, Falcons Footwear has $100 million in bonds with a return of 7 percent. The firm’s marginal tax rate is 40%. Required: Compute the weighted average cost of capital (WACC) for Falcons Footwear.
Raphael Corporation’s common stock is currently selling on a stock exchange at $192 per share, and...
Raphael Corporation’s common stock is currently selling on a stock exchange at $192 per share, and its current balance sheet shows the following stockholders’ equity section: Preferred stock—5% cumulative, $___ par value, 1,000 shares authorized, issued, and outstanding $ 70,000 Common stock—$___ par value, 4,000 shares authorized, issued, and outstanding 180,000 Retained earnings 340,000 Total stockholders' equity $ 590,000 Problem 11-5A Part 5 5.1 If two years’ preferred dividends are in arrears and the board of directors declares cash dividends...
Raphael Corporation’s common stock is currently selling on a stock exchange at $180 per share, and...
Raphael Corporation’s common stock is currently selling on a stock exchange at $180 per share, and its current balance sheet shows the following stockholders’ equity section: Preferred stock—5% cumulative, $___ par value, 1,000 shares authorized, issued, and outstanding $ 90,000 Common stock—$___ par value, 4,000 shares authorized, issued, and outstanding 160,000 Retained earnings 380,000 Total stockholders' equity $ 630,000 a.What is the current market value (price) of this corporation’s common stock? b.What are the par values of the corporation’s preferred...
Raphael Corporation’s common stock is currently selling on a stock exchange at $181 per share, and...
Raphael Corporation’s common stock is currently selling on a stock exchange at $181 per share, and its current balance sheet shows the following stockholders’ equity section: Preferred stock—5% cumulative, $___ par value, 1,000 shares authorized, issued, and outstanding $ 75,000 Common stock—$___ par value, 4,000 shares authorized, issued, and outstanding 140,000 Retained earnings 350,000 Total stockholders' equity $ 565,000 Required: 1. What is the current market value (price) of this corporation’s common stock? Raphael Corporation’s common stock is currently selling...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT