8a. Find the Net Asset Value (NAV) of a company with 350 million dollars in assets, 30 million in liabilities, and 8 million inoutstanding shares.b.If a year from now, after you bought the stock, the stock has a market value of $45, are you happy with your buy? Explain

Given: Assets = 350 millions Liabilities = 30 millions Shares = 8 million

Answered: 8a. Find the Net Asset Value (NAV) of a…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter7: Stocks (equity) - Characterstics And Valuation

Section: Chapter Questions

Problem 10PROB

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CALCULATING THE WACC Here is the condensed 2019 balance sheet for Skye Computer Company (in thousands of dollars): Skyes earnings per share last year were 3.20. The common stock sells for 55.00. last years dividend (D0) was 2.10, and a flotation cost of 10% would be required to sell new common stock. Security analysts are projecting that the common dividend will grow at an annual rate of 9%. Skyes preferred stock pays a dividend of 3.30 per share, and its preferred stock sells for 30.00 per share. The firms before-lax cost of debt is 10%, and its marginal tax rate is 25%. The firms currently outstanding 10% annual coupon rate, long-term debt sells at par value. The market risk premium is 5%, the risk-free rate is 6%, and Skyes beta is 1.516. The firms total debt, which is the sum of the companys short-term debt and long-term debt, equals 1.2 million. a. Calculate the cost of each capital component, that is, the after-tax cost of debt, the cost of preferred stock, the cost of equity from retained earnings, and the cost of newly issued common stock. Use the DCF method to find the cost of common equity. b. Now calculate the cost of common equity from retained earnings, using the CAPM method. c. What is the cost of new common stock based on the CAPM? (Hint: Find the difference between r1 and rs as determined by the DCF method, and add that differential to the CAPM value for rs.) d. If Skye continues to use the same market-value capital structure, what is the firms WACC assuming that (1) it uses only retained earnings for equity and (2) if it expands so rapidly that it must issue new common stock?

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8a. Find the Net Asset Value (NAV) of a company with 350 million dollars in assets, 30 million in liabilities, and 8 million in outstanding shares b.If a year from now, after you bought the stock, the stock has a market value of $45, are you happy with your buy? Explain