You are going to finance a project with common stock and coupon bonds. The common stock...

You are going to finance a project with common stock and coupon bonds. The common stock cost will be estimated based upon the Dividend Growth Model. The firm just paid a dividend of $2, with an estimated growth rate of 5% and a current price of $50. The coupon rate on the bonds is 8% and the YTM is 7%. The firm has a tax rate of 21%. If you use $650,000 of common equity and $500,000 of coupon bonds, what is the WACC of the project? a. 7.6% b. 7.9% c. 8.2% d. 9.6%

Expert Solution

jeff jeffy answered 2 years ago

Company finance structure is 25% bonds, 10% preferred stock, and 75% common stock, the bonds each...

Company finance structure is 25% bonds, 10% preferred stock, and 75% common stock, the bonds each have a face value of $1,000, selling at a discount of $35 today with maturity in 10 years, annual coupon interest of 8% and flotation cost of 2 1/2%, companys tax rate is 34%, preferred stock has a 7% annual dividend and par at $100 which can be sold today for $85, underwriters fee for the sale would be $2 per share, new common...

Great company is going to issue new coupon bonds. The bond issue is going to have...

Great company is going to issue new coupon bonds. The bond issue is going to have the following characteristics: bonds mature in 8 years from now and carry 4% coupon rate paid out quarterly. The par value of a bond is $5000 and the prevailing market interest rate for bonds with similar and maturity is 6%. Altogether 12000 bonds will be issued. a) Find the value of a single bond issue by Great company b) How much capital is company...

Danny Market issues only common stock and coupon bonds. The firm has a debt-equity ratio of...

Danny Market issues only common stock and coupon bonds. The firm has a debt-equity ratio of .48. The cost of equity is 9 percent and the pre-tax cost of debt is 7.5 percent. The tax rate is 34 percent. What is the capital structure weight of the firm’s debt? A. 21.40% B. 48.00% C. 28.09% D. 32.43% E. 37.14%

Big Bang Solutions, Inc. has $95,600,000 worth of common stock and $57,223,400 worth of coupon bonds....

Big Bang Solutions, Inc. has $95,600,000 worth of common stock and $57,223,400 worth of coupon bonds. If the required rate of return on the equity is 12.75 percent and the pre-tax yield to maturity on the bonds is 5.5 percent, what is the firm's WACC? The firm's tax rate is 21 percent.

Hilton Corporation has 1 million shares of common stock outstanding and 80,000 bonds with 6% coupon...

Hilton Corporation has 1 million shares of common stock outstanding and 80,000 bonds with 6% coupon at $1000 par each. The stock currently sells at $53 per share and has a beta of 1.15; the bonds have 25 years to maturity and sell at $1141. The market risk premium is 6.8% and Treasury bills are yielding 3.1%. If Hilton’s corporate tax rate is 21%, what is the company’s cost of capital (WACC)?

Bermuda Cruises issues only common stock and coupon bonds. The firm has a debt-equity ratio of 1.23

Bermuda Cruises issues only common stock and coupon bonds. The firm has a debt-equity ratio of 1.23. The cost of equity is 12.6 percent and the pretax cost of debt is 7.2 percent. What is the capital structure weight of the firm's equity if the firm's tax rate is 35 percent?

If government bonds are sold at a premium to finance a capital project, what is the...

If government bonds are sold at a premium to finance a capital project, what is the important question for the premium? Discussing proper accounting for bond installments in the Capital Projects Fund, Debt Service Fund, and data at the government level, assuming that the premium should be reserved for debt servicing

Green Forest Banking has issued bonds, common stock, and preferred stock. The YTM for the bonds...

Green Forest Banking has issued bonds, common stock, and preferred stock. The YTM for the bonds is 10.9 percent and the expected annual return for the common stock is 17.3 percent. Which of the following assertions about the expected annual return for the preferred stock issued by Green Forest Banking is most likely to be true? A) The expected annual return for the preferred stock is 17.3 percent B) The expected annual return for the preferred stock is 10.9 percent...

“Common stock is the riskiest corporate security, followed by preferred stock and then bonds.” Is it...

“Common stock is the riskiest corporate security, followed by preferred stock and then bonds.” Is it correct,explain in detail

6. Company X is going to issue 2,000 stock option (200,000 shares) on its common stock...

6. Company X is going to issue 2,000 stock option (200,000 shares) on its common stock to the top executives today. The exercise price on the stock options is $30 per share. If past experience dictates that the executives will exercise their option by the 11th year on average and that the variance of stock returns is .15 (annual), calculate the value of these stock options assuming a dividend yield of 1% and a risk free rate of 4%. The stock is trading...

Question

You are going to finance a project with common stock and coupon bonds. The common stock...

Solutions

Expert Solution

Related Solutions