The market risk premium for FCIB is 9 percent, and has a tax rate of 35 percent. The risk-free rate of interest is 5%. Willow-Woods Inc. has a capital structure comprised of the following:  8,500,000 shares of common stock outstanding,  200,000 shares of 7 percent preferred stock outstanding, and  85,000, 8.5 percent semiannual bonds outstanding, par value of $1,000 each. The common stock currently sells for $34 per share and has a beta of 1.2, the preferred stock currently sells for $83 per share, and the bonds have 15 years to maturity and sell for 93 percent of par. a) What is the market value of Willow-Woods’ capital structure?

The market risk premium for FCIB is 9 percent, and has a tax rate of 35 percent. The risk-free rate of interest is 5%. Willow-Woods Inc. has a capital structure comprised of the following:  8,500,000 shares of common stock outstanding,  200,000 shares of 7 percent preferred stock outstanding, and  85,000, 8.5 percent semiannual bonds outstanding, par value of $1,000 each. The common stock currently sells for $34 per share and has a beta of 1.2, the preferred stock currently sells for $83 per share, and the bonds have 15 years to maturity and sell for 93 percent of par. a) What is the market value of Willow-Woods’ capital structure?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 17P

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The market risk premium for FCIB is 9 percent, and has a tax rate of 35 percent. The risk-free rate of interest is 5%. Willow-Woods Inc. has a capital structure comprised of the following:  8,500,000 shares of common stock outstanding,  200,000 shares of 7 percent preferred stock outstanding, and  85,000, 8.5 percent semiannual bonds outstanding, par value of $1,000 each. The common stock currently sells for $34 per share and has a beta of 1.2, the preferred stock currently sells for $83 per share, and the bonds have 15 years to maturity and sell for 93 percent of par. a) What is the market value of Willow-Woods’ capital structure? – 4 marks b) What rate should Willow-Woods should use to discount the cash flows of a new investment project that has the same risk as the company’s typical project?
Y ou are given the following information for Watson Power Co. Assume the company’s tax rate is 21 percent. Debt: 21,000 7 percent coupon bonds outstanding, $1,000 par value, 22 years to maturity, selling for 108 percent of par; the bonds make semiannual payments. Common stock: 540,000 shares outstanding, selling for $72 per share; the beta is 1.18.Preferred stock: 24,000 shares of 4.8 percent preferred stock outstanding, currently selling for $93 per share. The par value is $100 per share. Market: 5 percent market risk premium and 5.3 percent risk-free rate. What is the company's WACC?
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You are given the following information for Watson Power Co. Assume the company's tax rate is 25 percent. Debt: 10,000 5.9 percent coupon bonds outstanding, $1,000 par value, 25 years to maturity, selling for 107 percent of par; the bonds make semiannual payments. Common stock: 430,000 shares outstanding, selling for $61 per share; the beta is 1.12. Preferred stock:18,500 shares of 3.7 percent preferred stock outstanding, currently selling for $82 per share. The par value is $100 per share. Market: 6 percent market risk premium and 4.7 percent risk-free rate. What is the company's WACC?