QuickHelper

(10)

$20/per page/

About QuickHelper

Levels Tought:
Elementary,High School,College,University,PHD

Expertise:
Accounting,Applied Sciences See all
Accounting,Applied Sciences,Business & Finance,Chemistry,Engineering,Health & Medical Hide all
Teaching Since: May 2017
Last Sign in: 364 Weeks Ago
Questions Answered: 20103
Tutorials Posted: 20155

Education

  • MBA, PHD
    Phoniex
    Jul-2007 - Jun-2012

Experience

  • Corportae Manager
    ChevronTexaco Corporation
    Feb-2009 - Nov-2016

Category > Accounting Posted 01 Jun 2017 My Price 6.00

WACC Calculations,

Question description

 

Please see attached document

Advance, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 14 years to maturity that is quoted at 104 percent of face value. The issue makes semiannual payments and has a coupon rate of 8 percent annually.


 What is Advance's pretax cost of debt?

If the tax rate is 35 percent, what is the aftertax cost of debt?

 

Shanken Corp. issued a bond with a maturity of 20 years and a semiannual coupon rate of 10 percent 2 years ago. The bond currently sells for 93 percent of its face value. The book value of the debt issue is $50 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 13 years left to maturity; the book value of this issue is $40 million and the bonds sell for 52 percent of par. The company’s tax rate is 35 percent. 

What is the company’s total book value of debt?

What is the company’s total market value of debt?

What is your best estimate of the aftertax cost of debt?

 

Mullineaux Corporation has a target capital structure of 65 percent common stock and 35 percent debt. Its cost of equity is 13 percent, and the cost of debt is 10 percent. The relevant tax rate is 30 percent.

 

What is Mullineaux’s WACC?

 

 

Miller Manufacturing has a target debt-equity ratio of .35. Its cost of equity is 14 percent, and its cost of debt is 5 percent. If the tax rate is 38 percent, what is the company’s WACC?

 

Filer Manufacturing has 9.3 million shares of common stock outstanding. The current share price is $63, and the book value per share is $5. Filer Manufacturing also has two bond issues outstanding. The first bond issue has a face value of $72 million and a coupon rate of 8 percent and sells for 107.3 percent of par. The second issue has a face value of $62 million and a coupon rate of 8.5 percent and sells for 110.9 percent of par. The first issue matures in 9 years, the second in 26 years.

 

The company’s stock has a beta of 1.3. The risk-free rate is 4.1 percent, and the market risk premium is 8 percent. Assume that the overall cost of debt is the weighted average implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 40 percent. What is the company’s WACC?

 

 

 

 

 

 

You are given the following information for Huntington Power Co. Assume the company’s tax rate is 40 percent.

    Debt:

10,000 7.1 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 1.04.

 

 

  Market:

10 percent market risk premium and 5.1 percent risk-free rate.

 

What is the company's WACC?

 

The Saunders Investment Bank has the following financing outstanding.

  

  Debt:

40,000 bonds with a coupon rate of 7 percent and a current price quote of 114; the bonds have 20 years to maturity. 210,000 zero coupon bonds with a price quote of 21.5 and 30 years until maturity. Assume semiannual compounding.

 

 

  Preferred stock:

130,000 shares of 5 percent preferred stock with a current price of $78, and a par value of $100.

 

 

  Common stock:

2,400,000 shares of common stock; the current price is $64, and the beta of the stock is 1.45.

 

 

  Market:

The corporate tax rate is 40 percent, the market risk premium is 7 percent, and the risk-free rate is 4 percent.

  

What is the WACC for the company?

 

Floyd Industries stock has a beta of 1.3. The company just paid a dividend of $.30, and the dividends are expected to grow at 4 percent per year. The expected return on the market is 13 percent, and Treasury bills are yielding 5.1 percent. The most recent stock price for Floyd is $68.


 a.

Calculate the cost of equity using the DDM method.

 

b.

Calculate the cost of equity using the SML method.

 

 

 

Answers

QuickHelper
(10)
Status NEW Posted 01 Jun 2017 09:06 PM My Price 6.00

Hel-----------lo -----------Sir-----------/Ma-----------dam----------- T-----------han-----------k Y-----------ou -----------for----------- us-----------ing----------- ou-----------r w-----------ebs-----------ite----------- an-----------d a-----------cqu-----------isi-----------tio-----------n o-----------f m-----------y p-----------ost-----------ed -----------sol-----------uti-----------on.----------- Pl-----------eas-----------e p-----------ing----------- me----------- on----------- ch-----------at -----------I a-----------m o-----------nli-----------ne -----------or -----------inb-----------ox -----------me -----------a m-----------ess-----------age----------- I -----------wil-----------l

Not Rated(0)