At the end of its 2017 fiscal year-end Hopkins Corporation had 50,000 shares of preferred stock...

At the end of its 2017 fiscal year-end Hopkins Corporation had 50,000 shares of preferred stock outstanding. The preferred stock has a book value of $30 per share. In addition, Hopkins paid $75,000 in dividends to preferred shareholders in 2017. Hopkins also has $2,500,000 of interest bearing debt outstanding and its after-tax cost of debt is 6.4%. The market value of Hopkins Corporation’s common stock equity at year end is $6,240,000 and the company's cost of common equity is 9.4%.

Required:

a.	What is the total book value of Hopkins Corporation's preferred stock at the end of 2017?
b.	Estimate the cost of Hopkins Corporation's preferred equity capital.
c.	Calculate Hopkins Corporation's weighted average cost of capital.

Solutions

Expert Solution

(a) What is the total book value of Hopkins Corporation's preferred stock at the end of 2017?

= 50,000 Shares x $30 per share

= $15,00,000

(b) Estimate the cost of Hopkins Corporation's preferred equity capital.

Cost of preferred capital = Preferred Dividend / Value of preferred stock

= ($75,000 / $15,00,000) x 100

= 5%

Value Weight

Value of Preferred Stock 1,500,000.00 0.1465

Value of Debt 2,500,000.00 0.2441

Value of Equity 6,240,000.00 0.6094

Cost of Preferred Stock 5%

Cost of Debt 6.40%

Cost of Equity 9.40%

weighted average cost of capital

= (5% x 0.1465 ) + (6.40% x 0.2441 ) + (9.40% x 0.6094)

= 8.02%

= or 8% (Rounded Figure)

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

During 2018, Angel Corporation had 900,000 shares of common stock and 50,000 shares of 6% preferred...

During 2018, Angel Corporation had 900,000 shares of common stock and 50,000 shares of 6% preferred stock outstanding. The preferred stock is not convertible. Angel declared and paid cash dividends of $300,000 and $150,000 to common and preferred shareholders, respectively, during 2018. On January 1, 2017, Angel issued $2,000,000 of convertible 5% bonds at face value. Each $1,000 bond is convertible into 10 common shares. Angels net income for the year ended December 31, 2018, was $6 million. The income...

Waxfastic Corporation had the following balances on December 31, 2018, its year-end (in thousands): preferred shares...

Waxfastic Corporation had the following balances on December 31, 2018, its year-end (in thousands): preferred shares $3,012; common shares $4,718; contributed surplus $1,750; retained earnings $16,791; and accumulated other comprehensive income $514. During the year ended December 31, 2019 the company earned net income of $3,613,000, issued common shares for $30,000, and declared and paid dividends of $14,000 and $5,000 to preferred and common shareholders respectively. Waxfastic follows IFRS. Required: Prepare a statement of changes in equity for 2019, as...

At December 31, 2017, Blue Spruce Corporation had the following shares outstanding: 7% cumulative preferred shares,...

At December 31, 2017, Blue Spruce Corporation had the following shares outstanding: 7% cumulative preferred shares, 107,100 shares outstanding $10,710,000 Common shares, 4,190,000 shares outstanding 20,950,000 During 2017, the corporation’s only share transaction was the issuance of 370,000 common shares on April 1. During 2017, the following also occurred: Income from continuing operations before tax $22,800,000 Discontinued operations (loss before tax) 3,401,000 Preferred dividends declared 749,700 Common dividends declared 2,130,000 Effective tax rate 40% Calculate earnings per share information as...

Pealand Company has 50,000 shares of common stock outstanding and 2,000 shares of preferred stock outstanding....

Pealand Company has 50,000 shares of common stock outstanding and 2,000 shares of preferred stock outstanding. The common stock is $1.00 par value. The preffered stock has a $100 par value, a 5% dividend rate, and is noncumulative. On October 31, 2015, the company declares dividends of $0.25 per share for common. Provide the journal entry for the declaration of dividends.

On December 31, 2017, Dow Steel Corporation had 670,000 shares of common stock and 37,000 shares...

On December 31, 2017, Dow Steel Corporation had 670,000 shares of common stock and 37,000 shares of 7%, noncumulative, nonconvertible preferred stock issued and outstanding. Dow issued a 4% common stock dividend on May 15 and paid cash dividends of $470,000 and $76,000 to common and preferred shareholders, respectively, on December 15, 2018. On February 28, 2018, Dow sold 51,000 common shares. Also, as a part of a 2017 agreement for the acquisition of Merrill Cable Company, another 30,000 shares...

On December 31, 2017, Dow Steel Corporation had 790,000 shares of common stock and 49,000 shares...

On December 31, 2017, Dow Steel Corporation had 790,000 shares of common stock and 49,000 shares of 7%, noncumulative, nonconvertible preferred stock issued and outstanding. Dow issued a 4% common stock dividend on May 15 and paid cash dividends of $590,000 and $88,000 to common and preferred shareholders, respectively, on December 15, 2018. On February 28, 2018, Dow sold 72,000 common shares. In keeping with its long-term share repurchase plan, 6,000 shares were retired on July 1. Dow's net income...

On December 31, 2017, Dow Steel Corporation had 710,000 shares of common stock and 41,000 shares...

On December 31, 2017, Dow Steel Corporation had 710,000 shares of common stock and 41,000 shares of 7%, noncumulative, nonconvertible preferred stock issued and outstanding. Dow issued a 4% common stock dividend on May 15 and paid cash dividends of $510,000 and $80,000 to common and preferred shareholders, respectively, on December 15, 2018. On February 28, 2018, Dow sold 63,000 common shares. In keeping with its long-term share repurchase plan, 4,000 shares were retired on July 1. Dow's net income...

On December 31, 2017, Dow Steel Corporation had 700,000 shares of common stock and 40,000 shares...

On December 31, 2017, Dow Steel Corporation had 700,000 shares of common stock and 40,000 shares of 10%, noncumulative, nonconvertible preferred stock issued and outstanding. Dow issued a 5% common stock dividend on May 15 and paid cash dividends of $500,000 and $79,000 to common and preferred shareholders, respectively, on December 15, 2018. On February 28, 2018, Dow sold 64,000 common shares. In keeping with its long-term share repurchase plan, 6,000 shares were retired on July 1. Dow's net income...

On December 31, 2017, Dow Steel Corporation had 730,000 shares of common stock and 43,000 shares...

On December 31, 2017, Dow Steel Corporation had 730,000 shares of common stock and 43,000 shares of 9%, noncumulative, nonconvertible preferred stock issued and outstanding. Dow issued a 5% common stock dividend on May 15 and paid cash dividends of $530,000 and $82,000 to common and preferred shareholders, respectively, on December 15, 2018. On February 28, 2018, Dow sold 60,000 common shares. In keeping with its long-term share repurchase plan, 2,000 shares were retired on July 1. Dow's net income...

On December 31, 2017, Dow Steel Corporation had 620,000 shares of common stock and 32,000 shares...

On December 31, 2017, Dow Steel Corporation had 620,000 shares of common stock and 32,000 shares of 10%, noncumulative, nonconvertible preferred stock issued and outstanding. Dow issued a 5% common stock dividend on May 15 and paid cash dividends of $420,000 and $71,000 to common and preferred shareholders, respectively, on December 15, 2018. On February 28, 2018, Dow sold 64,000 common shares. Also, as a part of a 2017 agreement for the acquisition of Merrill Cable Company, another 20,000 shares...

Subjects