Phillips Equipment Inc. has 72,000 bonds outstanding that are each selling at$1,066 in the market. Each bond has 8 years left to maturity, a $1000 facevalue and a coupon rate of 5%. Coupons are paid semiannually. The companyalso has 1.9 million shares of common stock outstanding. The common stockhas a beta of 1.35 and sells for $44 a share. The U.S. Treasury bill is yielding3.1 percent and the return on the market is 9.5 percent. The corporate tax rateis 35 percent.(a) Determine the firms market value weight for debt (Enter answers as a % to 2decimal places)8.41 %(b) Determine the firms market value weight for equity (Enter answers as a % to2 decimal places) 91.59 %(c) What is the firms after tax cost of debt? (Enter answers as a % to 2 decimalplaces) 2.81%(d) What is the firms cost of equity? (Enter answers as a % to 2 decimal places)11.74 %(e) Using the information you have found in the earlier parts, determine theCost of Capital for Phillips Equipment Inc. (Enter answers as a % to 2 decimalplaces)%

The cost of capital refers to the return that the company provides to all its stakeholders for their…

Answered: Phillips Equipment Inc. has 72,000…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 15P

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Phillips Equipment Inc. has 72,000 bonds outstanding that are each selling at $1,066 in the market. Each bond has 8 years left to maturity, a $1000 face value and a coupon rate of 5%. Coupons are paid semiannually. The company also has 2.2 million shares of common stock outstanding. The common stock has a beta of 1.15 and sells for $41 a share. The U.S. Treasury bill is yielding 2.3 percent and the return on the market is 9 percent. The corporate tax rate is 35 percent. (a) Determine the firms market value weight for debt (Enter answers as a % to 2 decimal places) (b) Determine the firms market value weight for equity (Enter answers as a % to 2 decimal places) [ (c) What is the firms after tax cost of debt? (Enter answers as a % to 2 decimal places) [ % (d) What is the firms cost of equity? (Enter answers as a % to 2 decimal places) (e) Using the information you have found in the earlier parts, determine the Cost of Capital for Phillips Equipment Inc. (Enter answers as a%% to 2 decimal…
Your company currently has a bond issue outstanding with 13 years to maturity, a face value of $1,000 that trade for $1,042. The total face value amount outstanding is $5,720,000 and the expected return on the bonds is 3.79%. Your company has 507,000 shares of common stock outstanding. The shares have a beta of 1.26, and currently sells for $12/share. Treasury bills yield 1.35% and the expected rate of return on the S&P 1,500 index is 6.25%. The corporate tax rate is 26%. What is the WACC?
Firm Z has issued 1,000,000 bonds. Each bond is priced at $929 and has a face value of $1000. It pays annual coupon payments and has a coupon rate of 3%. The bonds will mature in 20 years. Stock price of Firm Z is $10, and there are 50 million shares outstanding. There are 2 million shares of preferred stock, which offers $2 dividend and is priced at $40. Equity beta of Firm Z is 1.5 and current market portffolio yields 8% and the risk free rate is 2%. Corproate tax rate is 30%. Find the costs of debt, equity, preferred stock and WACC. Please show your work.
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Big Door Company has 8.7 million shares outstanding, which are currently trading for about $13 per share and have a levered equity beta of 1.2. Big Door has 19,900 outstanding bonds, with a 4% coupon rate, payable semi-annually and due in 10 years. The bonds are rated BBB. Currently the credit spread for BBB is 178 basis points over equivalent-maturity Government of Canada debt. The current yield on 10-year Canada bonds is 5%, compounded semi-annually. The risk-free interest rate is 2%, and the market risk premium is 6.6%. The company has a 35% tax rate. (Do not round intermediate calculations.) a. Calculate Big Door's WACC. (Round your answer to 2 decimal places.) WACC b. Calculate Big Door's unlevered beta, using the following formula: (Round your answer to 2 decimal places.) Pleveret Pdebtx (1–Tc)×D/E BU 1+(1–Tc)×D/E es Unlevered beta c. If Big Door was 50% debt-financed, what would be its WACC? Assume that the beta of its debt is unchanged by the capital structure change. (Round…
Firm Z has issued 1,000,000 bonds. Each bond is priced at $929 and has a face value of $1000. It pays annual coupon payments and has a coupon rate of 3%. The bonds will mature in 20 years. Stock price of Firm Z is $10, and there are 50 million shares outstanding. There are 2 million shares of preferred stock, which offers $2 dividend and is priced at $40. Equity beta of Firm Z is 1.5 and current market portfolio yields 8% and the risk free rate is 2%. Corporate tax rate is 30%. What is the following: 1. costs of debt, 2.equity, 3. preferred stock and WACC?
Firm Z has issued 1,000,000 bonds. Each bond is priced at $929 and has a face value of $1000. It pays annual coupon payments and has a coupon rate of 3%. The bonds will mature in 20 years. Stock price of Firm Z is $10, and there are 50 million shares outstanding. There are 2 million shares of preferred stock, which offers $2 dividend and is priced at $40. Equity beta of Firm Z is 1.5 and current market portffolio yields 8% and the risk free rate is 2%. Corproate tax rate is 30%. Find the costs of debt, equity, preferred stock and WACC. Show work using excel formulas
ROFL Limited has asked you to calculate the debt component to help in its calculation of its weighted average cost of capital (WACC). ROFL has 2,000 Corporate Bonds outstanding with a face value of $49,000 each. The coupon rate is 4% pa. compounding semi-annually. The bonds mature in 12 years and currently ROFL bonds are trading in the market at a yield of 7%p a. If a coupon payment was paid today what is the total market value of ROFLS issued bonds? Provide your answer to the nearest dollar.
firm z has issued 1000000 bonds. each bond is priced at $929 and has a face value of $1000. it pays annual coupon payments and has a coupon rate of 3%. the bonds will mature in 20 years. stock price of firm z is $10, and there are 50 million shares outstanding. there are 2 million shares of preferred stock, whoch offers $2 dividend and is priced at $40. equity beta of firm z is 1.5 and current market portfolio yields 8% and the risk free rate is 2%. corporate tax rate is 30%. find the costs of debt, equity, preferred stock and WACC
Wisteria Company has some $1,000 par value bonds outstanding which pay a 14 percent annual coupon interest rate. The bonds have ten years remaining until maturity. Bonds bearing similar risk currently sell to yield a 12 percent rate of return. What is the current value of each Wisteria bond? A) $791.00 B) $1,000 C) $1,052.24 D) $1,113.00
ADL has 4 million ordinary shares outstanding that are currently priced at $7.50 each and have a beta of 1.4. Four years ago, the company issued bonds with a total face value of $11 million. One bond has a face value of $250,000. The bonds have a coupon rate of 5% p.a., and coupons are paid semi-annually. The bonds mature eleven years from today. The bonds currently yield 6% p.a. The company has 650,000 preference shares trading at $8 each. The return on the stock market is 9% p.a., the risk-free return is 4% p.a., and the company tax rate is 30%. The market yield on the ADL preference shares is 8%. What proportion of the firm's capital structure is preference shares?
Hudson Corp. sells $300,000 of bonds to private investors. The bonds have a 7% coupon rate and interest is paid semiannually. The bonds were sold to yield 10%. What periodic interest payment does Hudson make to its investors?

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