Kim's Bridal Shoppe has 12,400 shares of common stock outstanding at a price of $58 per share. It also has 325 shares of preferred stock outstanding at a price of $88 per share. There are 400 bonds outstanding that have a coupon rate of 7.7 percent paid semiannually. The bonds mature in 39 years, have a face value of $2,000, and sell at 113 percent of par. What is the capital structure weight of the common stock?
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- The following table gives the current balance sheet for Travellers Inn Inc. (TII), a company that was formed by merging a number of regional motel chains. Travellers Inn (Millions of Dollars) The following facts also apply to TII. (1) The long-term debt consists of 29,412 bonds, each having a 20-year maturity, semiannual payments, a coupon rate of 7.6%, and a face value of 1,000. Currently, these bonds provide investors with a yield to maturity of 11.8%. If new bonds were sold, they would have an 11.8% yield to maturity. (2) TIIs perpetual preferred stock has a 100 par value, pays a quarterly dividend per share of 2, and has a yield to investors of 10%. New perpetual preferred stock would have to provide the same yield to investors, and the company would incur a 3.85% flotation cost to sell it. (3) The company has 3.8 million shares of common stock outstanding, a price per share = P0 = 20, dividend per share = D0 = 1, and earnings per share = EPS0 = 5. The return on equity (ROE) is expected to be 10%. (4) The stock has a beta of 1.6%. The T-bond rate is 6%, and RPM is estimated to be 5%. (5) TIIs financial vice president recently polled some pension fund investment managers who hold TIIs securities regarding what minimum rate of return on TIIs common would make them willing to buy the common rather than TII bonds, given that the bonds yielded 11.8%. The responses suggested a risk premium over TII bonds of 3 percentage points. (6) TII is in the 25% federal-plus-state tax bracket. Assume that you were recently hired by TII as a financial analyst and that your boss, the treasurer, has asked you to estimate the companys WACC under the assumption that no new equity will be issued. Your cost of capital should be appropriate for use in evaluating projects that are in the same risk class as the assets TII now operates. Based on your analysis, answer the following questions. a. What are the current market value weights for debt, preferred stock, and common stock? (Hint: Do your work in dollars, not millions of dollars. When you calculate the market values of debt and preferred stock, be sure to round the market price per bond and the market price per share of preferred to the nearest penny.) b. What is the after-tax cost of debt? c. What is the cost of preferred stock? d. What is the required return on common stock using CAPM? e. Use the retention growth equation to estimate the expected growth rate. Then use the expected growth rate and the dividend growth model to estimate the required return on common stock. f. What is the required return on common stock using the own-bond-yield-plus-judgmental-risk-premium approach? g. Use the required return on stock from the CAPM model, and calculate the WACC.Market Basket, Inc., has 125,000 shares of common stock outstanding at a price of $43 a share. They also have 25,000 shares of preferred stock outstanding at a price of $55 a share. There are 10,000, 8 percent bonds outstanding that are priced at $990. The bonds mature in 16 years and pay interest semiannually. What is the capital structure weight of the preferredstock?Masterson, Inc., has 8 million shares of common stock outstanding. The current share price is $82, and the book value per share is $6. The company also has two bond issues outstanding. The first bond issue has a face value of $135 million, has a coupon rate of 7 percent, and sells for 93 percent of par. The second issue has a face value of $120 million, has a coupon rate of 6 percent, and sells for 102 percent of par. The first issue matures in 25 years, the second in 9 years. Both bonds make semiannual coupon payments. What are the company's capital structure weights on a book value basis? Equity/Value ___________ Debt/Value ____________ What are the company's capital structure weights on a market value basis? Equity/Value __________ Debt/Value ___________
- Masterson, Inc., has 8 million shares of common stock outstanding. The current share price is $74, and the book value per share is $7. The company also has two bond issues outstanding. The first bond issue has a face value of $95 million, has a coupon rate of 7 percent, and sells for 97 percent of par. The second issue has a face value of $80 million, has a coupon rate of 6 percent, and sells for 109 percent of par. The first issue matures in 23 years, the second in 6 years. Both bonds make semiannual coupon payments. a. What are the company's capital structure weights on a book value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.) b. What are the company’s capital structure weights on a market value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.) c. Which are more relevant, the book or market value weights?Dinklage Corp. has 5 million shares of common stock outstanding. The current share price is $77, and the book value per share is $8. The company also has two bond issues outstanding. The first bond issue has a face value of $60 million, a coupon rate of 6 percent, and sells for 97 percent of par. The second issue has a face value of $30 million, a coupon rate of 7 percent, and sells for 105 percent of par. The first issue matures in 21 years, the second in 4 years. Suppose the most recent dividend was $4.90 and the dividend growth rate is 6 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 40 percent. What is the company's WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) WACC _________%Dineage Corporation has 5 million shares of common stock outstanding. The current share price is $84, and the book value per share is $7. The company also has two bond issues outstanding. The first bond issue has a face value of $60 million, has a 7 percent coupon, and sells for 94 percent of par. The second issue has a face value of $35 million, has a 8 percent coupon, and sells for 107 percent of par. The first issue matures in 22 years, the second in 4 years. The most recent dividend was $5.6 and the dividend growth rate is 8 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 35 percent. What is the company's WACC?
- Dani Corporation has 6 million shares of common stock outstanding. The current share price is $66, and the book value per share is $5. The company also has two bond issues outstanding. The first bond issue has a face value of $55 million, has a coupon rate of 6 percent, and sells for 91 percent of par. The second issue has a face value of $40 million, has a coupon rate of 5 percent, and sells for 103 percent of par. The first issue matures in 21 years, the second in 6 years. Suppose the most recent dividend was $4.10 and the dividend growth rate is 4.1 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 22 percent. What is the company’s WACC?Erna Corp. has 9 million shares of common stock outstanding. The current share price is $81, and the book value per share is $8. Erna Corp. also has two bond issues outstanding. The first bond issue has a face value of $80 million, has a coupon of 10 percent, and sells for 96 percent of par. The second issue has a face value of $50 million, has a coupon of 11 percent, and sells for 104 percent of par. The first issue matures in 25 years, the second in 8 years. suppose the most recent dividend was $5.30 and the dividend growth rate was 5%. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. both bonds make semi-annual payments. The tax rate is 35%. what is the company's WACC.Dani Corporation has 6 million shares of common stock outstanding. The current share price is $72, and the book value per share is $9. The company also has two bond issues outstanding. The first bond issue has a face value of $85 million, a coupon rate of 5 percent, and sells for 97 percent of par. The second issue has a face value of $70 million, a coupon rate of 4 percent, and sells for 109 percent of par. The first issue matures in 21 years, the second in 8 years. Suppose the most recent dividend was $4.40 and the dividend growth rate is 4.7 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. The tax rate is 23 percent. What is the company’s WACC?
- Dinklage Corporation has 9 million shares of common stock outstanding. The current share price is $88, and the book value per share is $7. The company also has two bond issues outstanding. The first bond issue has a face value of $80 million, has a 5 percent coupon, and sells for 98 percent of par. The second issue has a face value of $55 million, has a 6 percent coupon, and sells for 106 percent of par. The first issue matures in 20 years, the second in 8 years. The most recent dividend was $6 and the dividend growth rate is 8 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 38 percent. What is the company's WACC?Pandora Manufacturing has 6 million shares of common stock outstanding. The current share price is $72, and the book value per share is $7. The company also has two bond issues outstanding. The first bond issue has a face value of $70 million and a coupon rate of 7 percent and sells for 97 percent of par. The second issue has a face value of $50 million and a coupon rate of 8 percent and sells for 106 percent of par. The first issue matures in 22 years, the second in 6 years. a. What are the company’s capital structure weights on a book value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.) b. What are the company’s capital structure weights on a market value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.) c. Which are more relevant, the book or market value weights? a. Equity/Value: Debt/Value: b. Equity/Value: Debt/Value: c.More relevant:A corporation has 7 million shares of common stock outstanding. The current share price is $68, and the book value per share is $8. The company also has two bond issues outstanding. The first bond issue has a face value of $70 million, a coupon rate of 6 percent, and sells for 97 percent of par. The second issue has a face value of $40 million, a coupon rate of 6.5 percent, and sells for 108 percent of par. The first issue matures in 21 years, the second in 6 years. Assume the most recent dividend was $3.25 and the dividend growth rate is 5 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 21 percent. What is the company’s WACC?