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What is the YTM What is the cost of preferred stock? What is the rate of equity?


what is the

What is the YTM

What is the cost of preferred stock?

What is the rate of equity?

What is the after tax cost of debt?

What is the market value of the debt in dollars?

What is the market value of the firm?

Preferred stock what portion of the capital structure of the firm?

What is the weighted cost of equity?

What is the weighted average cost of capital?

What is the weighted floatation cost of debt?

What is the weighted average floatation cost?

What is the total floatation cost?

What is the Free cash flow for time periods 1-4?

What is the NPV of the project?

What is the IRR of the project?

Defense Electronics Worksheet 1-Excel Sign in X Tell me what you want to do AShare File Homr Insert Page laynut Formulas DataDefense Electronics This is a comprehensive project evaluation problem bringing together much of what you have learned in thiincluded. Be sure to put this cost under the tax line as we are dealing with after tax values The cost of the building and wo


Solutions

Expert Solution

Since, the question has multiple subparts, I have answered the first five.

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Part 1

What is the YTM?

The YTM can be calculated with the use of Rate function/formula of EXCEL/Financial Calculator. The function/formula for Rate is Rate(Nper,PMT,-PV,FV) where Nper = Period, PMT = Payment (here, Coupon Payment), PV = Present Value (here, Current Value of Bonds) and FV = Future Value (here, Face Value of Bonds).

Here, Nper = 25*2 = 50, PMT = 1,000*6.4%*1/2 = $32, PV = 1,000*110% = $1,100 and FV = $1,000 [we use 2 since the bond is semi-annual]

Using these values in the above function/formula for Rate, we get,

YTM = Rate(50,32,-1100,1000)*2 = 5.65%

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Part 2)

What is the cost of preferred stock?

The cost of preferred stock is determined as below:

Cost of Preferred Stock = Annual Dividend/Price at 0*100

Here, Annual Dividend = $4.50 and Price at 0 = $79

Using these values in the above formula, we get,

Cost of Preferred Stock = 4.50/79*100 = 5.70%

_____

Part 3)

What is the rate of equity?

The rate of equity is calculated as follows:

Rate of Equity = Risk Free Rate + Beta*(Market Risk Premium)

Here, Risk Free Rate = 3.5%, Beta = 1.3 and Market Risk Premium = 6%

Using these values in the above formula, we get,

Rate of Equity = 3.5% + 1.3*(6%) = 11.30%

_____

Part 4)

What is the after tax cost of debt?

The value of after tax cost of debt is arrived as below:

After-Tax Cost of Debt = YTM*(1-Tax Rate) = 5.65%*(1-32%) = 3.84%

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Part 5)

What is the market value of the debt in dollars?

The market value of the debt in dollars is determined as follows:

Market Value of Debt = Number of Bonds*Face Value of Bonds*Current Bond Price Percentage

Here, Number of Bonds = 210,000, Face Value of Bonds = 1,000 and Current Bond Price Percentage = 110%

Using these values in the above formula, we get,

Market Value of Debt = 210,000*1,000*110% = $231,000,000

_____

Tabular Representation Upto Rate of Equity Calculation

jeff jeffy answered 2 years ago
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