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? 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? -

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? 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? -

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter11: The Cost Of Capital

Section: Chapter Questions

Problem 15PROB

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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? 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?
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?
TAFKAP Industries has 3 million shares of stock outstanding selling at $17 per share, and an issue of $20 million in 7.5 percent annual coupon bonds with a maturity of 15 years, selling at 106 percent of par. Assume TAFKAP’s weighted average tax rate is 21 percent, it can make full use of the interest tax shield, and its cost of equity is 14.5 percent. What is TAFKAP’s WACC?
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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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Given the following information for American Energy Co., find the WACC. Assume the company tax rate is 21 percent. Debt: 25,500 bonds with coupon rate of 6 percent. $1,000 par value, 25 years to maturity, selling for 101.5 percent of par. The bonds make semiannual coupon payments. Floatation cost is 5% of current market price. Preferred stock: 25,000 shares of preferred stock outstanding currently pay $5.30 per share dividends, sell for $98 per share with floatation cost of $5. Common stock: 100,000 shares outstanding, selling for $512 per share; the beta is 1.35. Market: 7 percent market risk premium and 4 percent risk-free rate.
You are given the following information for Watson Power Co. Assume the company's tax rate is 22 percent. Debt: 22,000 7,1 percent coupon bonds outstanding. $1,000 par value, 21 years to maturity, selling for 107 percent of par; the bonds make semiannual payments. Common stock: 550,000 shares outstanding, selling for 573 per share, the beta is 1.17. Preferred stock: 24, 500 shares of 4.9 percent preferred stock outstanding, currently selling for $94 per share. The par value is $100 per share. Market: 6 percent market risk premium and 5.2 percent risk free rate. What is 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.)
XYZAB Limited has a target capital structure of 45% debt, 15% preferred stock and 40% common equity. The firm issued 2,000 semi-annual bonds, each at $1 200 with a coupon rate of 15%, a maturity period of 10 years and a par value of $1 000. The firm’s preferred stock pays a dividend of $15 per share and currently sells for $105 per share. However, the net proceeds to the firm from the sale of new preferred stock is only $90 per share. XYZAB Limited’s common stock currently sells for $55 per share and the firm recently paid a dividend of $5 per share on its common stock and the dividend is expected to grow indefinitely at a constant rate of 5% per annum. The firm has a tax rate of 30%. a) What is the firm’s after-tax cost of debt? b) What is the firm’s cost of newly issued preferred stock? c) What is the firm’s cost of common stock?