Consider Higgins Production which has the following information about its capital stru bt - 1,500, 5 percent coupon bonds outstanding, $1,000 par value, 7 years to maturity, percent of par, the bonds make semi-annual payments Common Stock - 100,000 shares outstanding, selling for $45 per share; the beta is 0.8 Preferred Stock - 25,000 shares of 6 percent preferred stock outstanding, currently se $150 per share Market Information - 6 percent market risk premium and 4 percent risk-free rate. quired: Calculate the following if the company has a tax rate of 36 percent. Total Market Value for the Firm After-tax cost of Debt

Consider Higgins Production which has the following information about its capital stru bt - 1,500, 5 percent coupon bonds outstanding, $1,000 par value, 7 years to maturity, percent of par, the bonds make semi-annual payments Common Stock - 100,000 shares outstanding, selling for $45 per share; the beta is 0.8 Preferred Stock - 25,000 shares of 6 percent preferred stock outstanding, currently se $150 per share Market Information - 6 percent market risk premium and 4 percent risk-free rate. quired: Calculate the following if the company has a tax rate of 36 percent. Total Market Value for the Firm After-tax cost of Debt

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter11: The Cost Of Capital

Section: Chapter Questions

Problem 15PROB

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Hasting Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt; its beta is 1.4 (given its target capital structure). Vandell has $10.82 million in debt that trades at par and pays an 8% interest rate. Vandell’s free cash flow (FCFJ is $2 million per year and is expected to grow at a constant rate of 5% a year. Vandell pays a 40% combined federal and state tax rate. The risk-free rate of interest is 5%, and the market risk premium is 6%. Hasting’s First step is to estimate the current intrinsic value of Vandell. What are Vandell’s cost of equity and weighted average cost of capital? What is Vandell’s intrinsic value of operations? [Hint: Use the free cash flow corporate valuation model from Chapter 8.) What is the current intrinsic value of Vandell’s stock?
2. Consider Higgins Production which has the following information about its capital structures:Debt - 1,500, 5 percent coupon bonds outstanding, $1,000 par value, 7 years to maturity, selling for 80 percent of par, the bonds make semi-annual payments Common Stock - 100,000 shares outstanding, selling for $45 per share; the beta is 0.80 Preferred Stock - 25,000 shares of 6 percent preferred stock outstanding, currently selling for $150 per share Market Information - 6 percent market risk premium and 4 percent risk-free rate.Required: Calculate the following if the company has a tax rate of 36 percent.i. Total Market Value for the Firm ii. After-tax cost of Debt iii. Cost of Equity iv. Cost of Preferred Stock v. Weighted Average Cost of Capital
2. Consider Higgins Production which has the following information about its capital structures:Debt - 1,500, 5 percent coupon bonds outstanding, $1,000 par value, 7 years to maturity, selling for 80 percent of par, the bonds make semi-annual payments  Common Stock - 100,000 shares outstanding, selling for $45 per share; the beta is 0.80 Preferred Stock - 25,000 shares of 6 percent preferred stock outstanding, currently selling for $150 per share Market Information - 6 percent market risk premium and 4 percent risk-free rate. Required: Calculate the following if the company has a tax rate of 36 percent.i. Total Market Value for the Firmii. After-tax cost of Debtiii. Cost of Equityiv. Cost of Preferred Stockv. Weighted Average Cost of Capital 3.Jones Cricket Institute issued a 30 year, 8 percent semi-annual bond 3 year ago. The bond currently sells for 93 percent of its face value. The Company’s tax rate is 35%. a. What is the pre-taxed cost of debt?b. What is the after tax cost of…
2. Consider Higgins Production which has the following information about its capital structures: Debt - 1,500, 5 percent coupon bonds outstanding, $1,000 par value, 7 years to maturity, selling for 80 percent of par, the bonds make semi-annual payments  Common Stock - 100,000 shares outstanding, selling for $45 per share; the beta is 0.80  Preferred Stock - 25,000 shares of 6 percent preferred stock outstanding, currently selling for $150 per share  Market Information - 6 percent market risk premium and 4 percent risk-free rate. Required: Calculate the following if the company has a tax rate of 36 percent. iii. Cost of Equityiv. Cost of Preferred Stockv. Weighted Average Cost of Capital PLEASE SHOW WORKINGS CLEARLY
Consider Huggins Production which has the following information about its capital structures: Debt - 1,500, 5 percent coupon bonds outstanding, $1,000 par value, 7 years to maturity, selling for 80 percent of par, the bonds make semi-annual payments Common Stock - 100,000 shares outstanding, selling for $45 per share; the beta is 0.80 Preferred Stock - 25,000 shares of 6 percent preferred stock outstanding, currently selling for $150 per share Market Information - 6 percent market risk premium and 4 percent risk-free rate. Required: Calculate the following if the company has a tax rate of 36 percent. 1. Cost of Preferred Stock 2. Weighted Average Cost of Capital
Consider Higgins Production which has the following information about its capital structures:Debt - 1,500, 5 percent coupon bonds outstanding, $1,000 par value, 7 years to maturity, selling for80 percent of par, the bonds make semi-annual payments Common Stock - 100,000 shares outstanding, selling for $45 per share; the beta is 0.80 Preferred Stock - 25,000 shares of 6 percent preferred stock outstanding, currently sellingfor $150 per share Market Information - 6 percent market risk premium and 4 percent risk-free rate.Required: Calculate the following if the company has a tax rate of 36 percent.Cost of Equity Weighted Average Cost of Capital
Consider Higgins Production which has the following information about its capital structures:Debt - 1,500, 5 percent coupon bonds outstanding, $1,000 par value, 7 years to maturity, selling for80 percent of par, the bonds make semi-annual payments Common Stock - 100,000 shares outstanding, selling for $45 per share; the beta is 0.80 Preferred Stock - 25,000 shares of 6 percent preferred stock outstanding, currently sellingfor $150 per share Market Information - 6 percent market risk premium and 4 percent risk-free rate.Required: Calculate the following if the company has a tax rate of 36 percent. Total Market Value for the Firm After-tax cost of Debt Cost of Equity Cost of Preferred Stock Weighted Average Cost of Capital
Consider Higgins Production which has the following information about its capital structures:Debt - 1,500, 5 percent coupon bonds outstanding, $1,000 par value, 7 years to maturity, selling for80 percent of par, the bonds make semi-annual payments Common Stock - 100,000 shares outstanding, selling for $45 per share; the beta is 0.80 Preferred Stock - 25,000 shares of 6 percent preferred stock outstanding, currently sellingfor $150 per share Market Information - 6 percent market risk premium and 4 percent risk-free rate. i. Cost of Preferred Stockii. Weighted Average Cost of Capital