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Interest is compounded annually unless stated otherwise. Payments are at the end of the year unless...

Interest is compounded annually unless stated otherwise. Payments are at the end of the year unless stated otherwise. All bonds have a face value of $1000. Taxes are 0 unless specified otherwise.

  1. Use the following information to estimate the weights for the cost of capital equation for STANCO:
    1. From the balance sheet: Assets = 800M. Debt = 200M and Equity = 600M
    2. The firm has 20M shares outstanding that trade for $50 per share. The market value of the debt is close to the book value from the balance sheet. Use market values to estimate the weights.

Solutions

Expert Solution

Based on book Values
Component Capital Weight
Debt                200 25.00%
Equity                600 75.00%
               800
Based on Market Values
Component No Per unit price Total capital Weight
Debt- Close to book value                 200.00 16.67%
Equity             20.00              50.00              1,000.00 83.33%
             1,200.00

jeff jeffy answered 2 years ago
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