Lingenburger Cheese Corporation has 6.2 million shares of common stock outstanding, 215,000 shares of 3.5 percent preferred stock outstanding, par value of $100; and 100,000 bonds with a semiannual coupon rate of 5.2 percent outstanding, par value $1,000 each. The common stock currently sells for $74 per share and has a beta of 1.10, the preferred stock has a par value of $100 and currently sells for $82 per share, and the bonds have 16 years to maturity and sell for 106 percent of par. The market risk premium is 6.9 percent, T-bills are yielding 2.9 percent, and the company's tax rate is 22 percent. a. What is the firm's market value capital structure? Note: Do not round intermediate calculations and round your answers to 4 decimal places, e.g...1616. b. If the company is evaluating a new investment project that has the same risk as the firm's typical project, what rate should the firm use to discount the project's cash flows? Note: Do not round intermediate calculations enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a. Debt Preferred stock Equity b. Discount rate

Lingenburger Cheese Corporation has 6.2 million shares of common stock outstanding, 215,000 shares of 3.5 percent preferred stock outstanding, par value of $100; and 100,000 bonds with a semiannual coupon rate of 5.2 percent outstanding, par value $1,000 each. The common stock currently sells for $74 per share and has a beta of 1.10, the preferred stock has a par value of $100 and currently sells for $82 per share, and the bonds have 16 years to maturity and sell for 106 percent of par. The market risk premium is 6.9 percent, T-bills are yielding 2.9 percent, and the company's tax rate is 22 percent. a. What is the firm's market value capital structure? Note: Do not round intermediate calculations and round your answers to 4 decimal places, e.g...1616. b. If the company is evaluating a new investment project that has the same risk as the firm's typical project, what rate should the firm use to discount the project's cash flows? Note: Do not round intermediate calculations enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a. Debt Preferred stock Equity b. Discount rate

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter20: Financing With Derivatives

Section: Chapter Questions

Problem 15P

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