S. ALAM group financed using the following weights: 35% long term debt, 15% preferred stock and 40% commonstock equity, and 10% retained earnings. The firm's corporate tax rate is 38%I. The firm can sell for tk. 990 an 8 years bond, Tk. 1000 par-value bond paying at an 11% coupon rate,flotation cost of per bond is 3.75% and under pricing by 2%.I1. Eleven percent (annual dividend) preferred stock having a par value of tk. 100 can be sold for tk. 85. Anadditional fee of tk. 5 per share must be paid to the underwriters.II. The firm's common stock currently selling for tk. 55 per share. The dividend expected to be paid at the endof the year is Tk. 5.35 per share. Dividends have been growing at an annual rate of 8.5%. Moreover,underwriting fees per share Tk. 7.a. Caleulate the WACC of the project and implications of investment decisions.b.The following two mutually exclusive projects have cash flows for its 5 years lifetime and cost ofcapital should be based on financing rubric in the problem (a).Cash flows Amra(Tk.)(12000)Cash flows BDcom (Tk.)(18000)7500Year16500-2900570055005500345900650055400-5300a. Calculate PB period and NPV and IRR of the projects and give a decision rule based on yourfindings of the projects

Calculation of Cost of Debt (Kd): Kd = 11% coupon rate Kd after tax = 11% (1-0.38) = 6.82%…

Answered: S. ALAM group financed using the…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section: Chapter Questions

Problem 13P

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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?
S. ALAM group financed using the following weights: 35% long term debt, 15% preferred stock and 40% commonstock equity, and 10% retained earnings. The firm’s corporate tax rate is 38%I. The firm can sell for tk. 990 an 8 years bond, Tk. 1000 par-value bond paying at an 11% coupon rate,flotation cost of per bond is 3.75% and under pricing by 2%.II. Eleven percent (annual dividend) preferred stock having a par value of tk. 100 can be sold for tk. 85. Anadditional fee of tk. 5 per share must be paid to the underwriters.III. The firm’s common stock currently selling for tk. 55 per share. The dividend expected to be paid at the endof the year is Tk. 5.35 per share. Dividends have been growing at an annual rate of 8.5%. Moreover,underwriting fees per share Tk. 7.a. Calculate the WACC of the project and implications of investment decisions.b.The following two mutually exclusive projects have cash flows for its 5 years lifetime and cost ofcapital should be based on financing rubric in the…
S. ALAM group financed using the following weights: 35% long term debt, 15% preferred stock and 40% commonstock equity, and 10% retained earnings. The firm’s corporate tax rate is 38%I. The firm can sell for tk. 980 an 8 years bond, Tk. 1000 par-value bond paying at an 11% coupon rate,flotation cost of per bond Tk.15.II. Eight percent (annual dividend) preferred stock having a par value of tk. 100 can be sold for tk. 85. Anadditional fee of tk. 5 per share must be paid to the underwriters.III. The firm’s common stock currently selling for tk. 50 per share. The dividend expected to be paid at the endof the year is Tk. 5.25 per share. Dividends have been growing at an annual rate of 8%. Moreover,underwriting fees per share Tk. 7.a. Calculate the WACC of the project and implications of investment decisions.b.The following two mutually exclusive projects have cash flows for its 5 years lifetime and cost ofcapital should be based on financing rubric in the problem (a).Year Cash flows…
S.ALAM group financed using the following weights: 35% long term debt, 15% preferred stock and 40% common stock equity, and 10% retained earnings. The firm’s corporate tax rate is 38% The firm can sell for tk. 990 an 8 years bond, Tk. 1000 par-value bond paying at an 11% coupon rate, flotation cost of per bond is 3.75% and under pricing by 2%. Eleven percent (annual dividend) preferred stock having a par value of tk. 100 can be sold for tk. 85. An additional fee of tk. 5 per share must be paid to the underwriters. The firm’s common stock currently selling for tk. 55 per share. The dividend expected to be paid at the end of the year is Tk. 5.35 per share. Dividends have been growing at an annual rate of 8.5%. Moreover, underwriting fees per share Tk. 7. 1.Calculate the WACC of the project and implications of investment decisions. 2.The following two mutually exclusive projects have cash flows for its 5 years lifetime and cost of capital should be based on financing rubric in the…
S. ALAM group financed using the following weights: 35% long term debt, 15% preferred stock and 40% common stock equity, and 10% retained earnings. The firm’s corporate tax rate is 38%I. The firm can sell for tk. 980 an 8 years bond, Tk. 1000 par-value bond paying at an 11% coupon rate,flotation cost of per bond Tk.15.II. Eight percent (annual dividend) preferred stock having a par value of tk. 100 can be sold for tk. 85. An additional fee of tk. 5 per share must be paid to the underwriters.III. The firm’s common stock currently selling for tk. 50 per share. The dividend expected to be paid at the end of the year is Tk. 5.25 per share. Dividends have been growing at an annual rate of 8%. Moreover,underwriting fees per share Tk. 7.a. Calculate the WACC of the project and implications of investment decisions.
S. ALAM group financed using the following weights: 35% long term debt, 15% preferred stock and 40% common stock equity, and 10% retained earnings. The firm’s corporate tax rate is 38%I. The firm can sell for tk. 980 an 8 years bond, Tk. 1000 par-value bond paying at an 11% coupon rate,flotation cost of per bond Tk.15.II. Eight percent (annual dividend) preferred stock having a par value of tk. 100 can be sold for tk. 85. An additional fee of tk. 5 per share must be paid to the underwriters.III. The firm’s common stock currently selling for tk. 50 per share. The dividend expected to be paid at the end of the year is Tk. 5.25 per share. Dividends have been growing at an annual rate of 8%. Moreover,underwriting fees per share Tk. 7. a. Calculate the WACC of the project and implications of investment decisions. 2. The following two mutually exclusive projects have cash flows for its 5 years lifetime and cost of capital should be based on financing rubric in the problem (a). year cash…
s ALAM group financed using the following weights: 35% long term debt, 15% preferred stock and 40% common stock equity, and 10% retained earnings. The firm’s corporate tax rate is 38% The firm can sell for tk. 980 an 8 years bond, Tk. 1000 par-value bond paying at an 11% coupon rate, flotation cost of per bond Tk.15. Eight percent (annual dividend) preferred stock having a par value of tk. 100 can be sold for tk. 85. An additional fee of tk. 5 per share must be paid to the underwriters. The firm’s common stock currently selling for tk. 50 per share. The dividend expected to be paid at the end of the year is Tk. 5.25 per share. Dividends have been growing at an annual rate of 8%. Moreover, underwriting fees per share Tk. 7. Calculate the WACC of the project and implications of investment decisions.
Answer - Z S.ALAM group financed using the following weights: 35% long term debt, 15% preferred stock and 40% common stock equity, and 10% retained earnings. The firm’s corporate tax rate is 38% The firm can sell for tk. 990 an 8 years bond, Tk. 1000 par-value bond paying at an 11% coupon rate, flotation cost of per bond is 3.75% and under pricing by 2%. Eleven percent (annual dividend) preferred stock having a par value of tk. 100 can be sold for tk. 85. An additional fee of tk. 5 per share must be paid to the underwriters. The firm’s common stock currently selling for tk. 55 per share. The dividend expected to be paid at the end of the year is Tk. 5.35 per share. Dividends have been growing at an annual rate of 8.5%. Moreover, underwriting fees per share Tk. 7. X) Calculate the WACC of the project and implications of investment decisions. Y.The following two mutually exclusive projects have cash flows for its 5 years lifetime and cost of capital should be based on financing…
Tell Corp. has a total book value of equity of $10 million and a book value per share of $20. The stock sells for a price of $30 per share, and the cost of equity is 15%. The firm's bonds have a par value of $5 million and sel at a price of 110% of par. The yield to maturity on the bonds is 9%, and the firms tax rate is 30%. What is the firms Weighted Average Cost of Capital? A. 11.91% B. 12.10% C. 12.67% D. 12.82 E. 13.30
The total book value of WTC's equity is $13 million, and book value per share is $20. The stock has a market-to-book ratio of 1.5, and the cost of equity is 9%. The firms bonds have a face value of $9 million and sell at a price of 110% of face value. The yield to maturity on the bonds is 7% andthe firm's tax rate is 21%. What is the company's WACC? (Don't round intermediate calculations, enter final answers as a percent rounded to 2 decimal places.)
Consider the following information for Federated Junkyards of America. Debt: $65,000,000 book value outstanding. The debt is trading at 86% of book value. The yield to maturity is 9%. Equity: 1,500,000 shares selling at $32 per share. Assume the expected rate of return on Federated’s stock is 18%. Taxes: Federated’s marginal tax rate is Tc = 0.21. Calculate the weighted-average cost of capital (WACC).
Kline Construction is an all-equity firm that has projected perpetual EBIT of $292,000. The current cost of equity is 11.6 percent and the tax rate is 23 percent. The company is in the process of issuing $908,000 worth of perpetual bonds with an annual coupon rate of 5.8 percent at par. What is the value of the levered firm?

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