+CMS Corporation's balance sheet as of today is as follows:Long-term debt (bonds, at par)Preferred stock$10,000,000Common stock ($10 par)Retained earningsTotal debt and equity2,000,00010,000,0004,000,000$26,000,000பThe bonds have a 8.3% coupon rate, payable semiannually, and a par value of$1,000. They mature exactly 10 years from today. The yield to maturity is 12%, sothe bonds now sell below par. What is the current market value of the firm's debt?Select the correct answer.a. $7,877,532b. $7,879,129c. $7,878,597d. $7,879,661e. $7,878,065

The objective of the question is to calculate the current market value of the firm's debt. The…

Answered: + CMS Corporation's balance sheet as of…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter16: Financial Planning And Control

Section: Chapter Questions

Problem 12PROB

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Gingko Inc. issued bonds with a face value of $100,000, a rate of 7%, and a 10-yearterm for $103,000. From this information, we know that the market rate of interest was ________. A. more than 7% B. less than 7% C. equal to 7% D. equal to 1.3%
Beluga Inc. issued 10-year bonds with a face value of $100,000 and a stated rate of 3% when the market rate was 4%. Interest was paid annually. The bonds were sold at 87.5. What was the sales price of the bonds? Were they issued at a discount, a premium, or at par?
CMS Corporation's balance sheet as of today is as follows: Long-term debt (bonds, at par) $10,000,000 Preferred stock 1,700,000 Common stock ($10 par) 10,000,000 Retained earnings 4,600,000 Total debt and equity $26,300,000 The bonds have a 3.8% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 10 years from today. The yield to maturity is 11.1%, so the bonds now sell below par. What is the current market value of the firm's debt? Group of answer choices $5,429,902 $5,656,148 $5,260,218 $6,165,201 $5,938,955
CMS Corporation's balance sheet as of today is as follows: Long-term debt (bonds, at par) $10,000,000 Preferred stock 2,000,000 Common stock ($10 par) 10,000,000 Retained earnings 4,000,000 Total debt and equity $26,000,000 The bonds have a 6.1% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 10 years from today. The yield to maturity is 12%, so the bonds now sell below par. What is the current market value of the firm's debt? Select the correct answer. a. $6,616,822 b. $6,617,271 c. $6,617,719 d. $6,616,373 e. $6,615,925
CMS Corporation's balance sheet as of today is as follows: Long-term debt (bonds, at par) $10,000,000 Preferred stock 2,000,000 Common stock ($10 par) 10,000,000 Retained earnings 4,000,000 Total debt and equity $26,000,000 The bonds have a 7.5% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 10 years from today. The yield to maturity is 12%, so the bonds now sell below par. What is the current market value of the firm's debt?
Suppose Westerfield Co. has the following financial information: Debt: 900,000 bonds outstanding with a face value of $1,000. The bonds currently trade at 85% of par and have 12 years to maturity. The coupon rate equals 7%, and the bonds make semiannual interest payments. Preferred stock: 600,000 shares of preferred stock outstanding; currently trading for $108 per share, paying a dividend of $9 annually. Common stock: 25,000,000 shares of common stock outstanding; currently trading for $185 per share. Beta equals 1.22. Market and firm information: The expected return on the market is 9%, the risk-free rate is 5%, and the tax rate is 21%. Calculate the cost of preferred stock. (Enter percentages as decimals and round to 4 decimals)
Suppose Westerfield Co. has the following financial information: Debt: 900,000 bonds outstanding with a face value of $1,000. The bonds currently trade at 85% of par and have 12 years to maturity. The coupon rate equals 7%, and the bonds make semiannual interest payments. Preferred stock: 600,000 shares of preferred stock outstanding; currently trading for $108 per share, paying a dividend of $9 annually. Common stock: 25,000,000 shares of common stock outstanding; currently trading for $185 per share. Beta equals 1.22. Market and firm information: The expected return on the market is 9%, the risk-free rate is 5%, and the tax rate is 21%. Calculate the weight of the common stock in the capital structure. (Enter percentages as decimals and round to 4 decimals)
Consider the following information for Watson Power Co.: Debt: 4,500 7 percent coupon bonds outstanding, $1,000 par value, 18 years to maturity, selling for 103 percent of par; the bonds make semiannual payments. Common stock: 108,000 shares outstanding, selling for $61 per share; the beta is 1.08. Preferred stock: 14,000 shares of 6.5 percent preferred stock outstanding, currently selling for $104 per share. Market: 9 percent market risk premium and 6 percent risk-free rate. Assume the company's tax rate is 34 percent. Find the WACC.
Consider the following information for Watson Power Company: Debt: 2,500 6 percent coupon bonds outstanding, $1,000 par value, 17 years to maturity, selling for 103 percent of par; the bonds make semiannual payments. Common stock: 50,000 shares outstanding, selling for $64 per share; the beta is 1.1. Preferred stock: 7,500 shares of 5.5 percent preferred stock outstanding, currently selling for $106 per share. Market: 8 percent market risk premium and 5 percent risk-free rate. Assume the company's tax rate is 34 percent. Find the WACC. Multiple Choice 8.83% 8.93% 9.23% 9.59% 8.73%
Information on Gerken Power Co., is shown below. Assume the company’s tax rate is 34 percent. Debt: 8,600 7.9 percent coupon bonds outstanding, $1,000 par value, 24 years to maturity, selling for 104.5 percent of par; the bonds make semiannual payments. Common stock: 211,000 shares outstanding, selling for $83.10 per share; beta is 1.16. Preferred stock: 12,100 shares of 5.8 percent preferred stock outstanding, currently selling for $97.90 per share. Market: 7.05 percent market risk premium and 4.85 percent risk-free rate. Required:Calculate the company's WACC. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) WACC %
The Imhoff Company's balance sheet shows the following labilities and net worth: 10,000 bonds (Issued at par value of $1,000 each, 6% seml-annual coupon, 10 years maturity remaining, and a current market price of $950) 1,000,000 shares of common stock outstanding Issued at $10 each. This past year's free cash flow (FCFO) was $1,000,000. For the next 2 years, free cash flows (FCF1, FCF2) are expected to grow by 20% per year, after which FF's will Increase at a constant rate of 5% per year. The company's WACC is estimated to be 9%. Finally, Imhoff has $1,000,000 invested in marketable securitles. This Investment is set aside for possible future acquisitions and is therefore not part of the company's day-to-day operations. Based on the above information, please answer the following questions: 1. What is the "terminal value" (or "horizon value") of Imhoff's free cash flows (FF's) from Year 3 onwards? 2. What is Imhoff's "value of operations" (or "enterprise value")? 3. What is Imhoff's…
Consider the following information for Watson Power Company:Debt: 5,500 5.5 percent coupon bonds outstanding, $1,000 par value, 18 years to maturity, selling for 105 percent of par; the bonds make semiannual payments.Common stock: 115,500 shares outstanding, selling for $59 per share; the beta is 1.19.Preferred stock: 19,500 shares of 4.5 percent preferred stock outstanding, currently selling for $108 per share.Market: 6 percent market risk premium and 4.5 percent risk-free rate.Assume the company's tax rate is 31 percent.Find the WACC.

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