None You are given the following information for Lighting Power Company. Assume thecompany's tax rate is 25 percent.Debt:Commonstock:Preferredstock:Market:20,000 6.9 percent coupon bonds outstanding, $1,000 par value, 23years to maturity, selling for 109 percent of par; the bonds makesemiannual payments.530,000 shares outstanding, selling for $71 per share; the beta is 1.19.23,500 shares of 4.7 percent preferred stock outstanding, a $100 parvalue, currently selling for $92 per share.7 percent market risk premium and 5.4 percent risk-free rate.What is the company's WACC? (Do not round intermediate calculations and enter youranswer as a percent rounded to 2 decimal places, e.g., 32.16.)WACC%

Step 1:We first calculate the weights of each securities.Calculations are shown below:Face value of…

Answered: You are given the following information…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter20: Financing With Derivatives

Section: Chapter Questions

Problem 14P

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Brower Co. is considering the following alternative financing plans: Income tax is estimated at 40% of income. Determine the earnings per share of common stock, assuming that income before bond interest and income tax is 2,000,000.
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?
Waylan Sisters Inc. issued 3-year bonds with a par value of $100,000 and a 6% annual coupon when the market rate of interest was 5%. If the bonds sold at 102.438, how much cash did Williams Sisters Inc. receive from issuing the bonds?
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.
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?
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.)
You are given the following information for Lighting Power Company. 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, a $100 par value, currently selling for $82 per share. Market: 6 percent market risk premium and 4.7 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.)
You are given the following information for Lightning Power Co. Assume the company’s tax rate is 21 percent. Debt: 6,000 5.5 percent coupon bonds outstanding, $1,000 par value, 21 years to maturity, selling for 103 percent of par; the bonds make semiannual payments. Common stock: 390,000 shares outstanding, selling for $57 per share; beta is 1.14. Preferred stock: 16,500 shares of 3.3 percent preferred stock outstanding, currently selling for $78 per share. The par value is $100 per share. Market: 5 percent market risk premium and 4.3 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.)
Given the following information for Watson Power Co., find the WACC. Assume the company’s tax rate is 21%. Debt: 15,000 bonds with a 5.8 percent coupon outstanding, $1,000 par value, 25 years to maturity, selling for 108 percent of par; the bonds make semiannual payments Common Stock: 575,000 shares outstanding, selling for $64 per share; the beta is 1.09. Preferred Stock: 35,000 shares of 2.8 percent preferred stock outstanding, currently selling for $65 per share. Market: 7 percent market risk premium and 3.2 percent risk-free rate. Please complete on excel and show excel formulas!

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