XYZ Company has a target capital structure of 60% common stock, 30% debt, and 10% preferred stock. The company wishes to issue new bond ($1,000 par value) with 10% coupon rate and 30 years to maturity. The flotation costs will be $20 and the bond has to be sold at 5% discount. To issue new preferred stock the company has to pay $2 as flotation cost. The market value of preferred stock is $8 and stock will pay $1 dividend. New common stocks will cost the company $2. The expected dividend is $3 and the market value is $19 and growth rate of 5%. Tax rate is 40%. What is the weighted average cost of capital?
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XYZ Company has a target capital structure of 60% common stock, 30% debt, and 10%
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- IRIS Corp. has determined its optimal capital structure as image Debt: The firm can sell a 10-year, $1,000 par value, 7 percent bond for $950. A flotation cost of 3percent of the par value would be required in addition to the discount of $50. Preferred Stock: The firm has determined it can issue preferred stock at $45 per share par value. The stock will pay an $6.5 annual dividend. The cost of issuing and selling the stock is $2.5 per share. Common Stock: The firm's common stock is currently selling for $25 per share. The dividend expected to be paid at the end of the coming year is $3.75. Its dividend payments have been growing at a constant rate for the last five years. Five years ago, the dividend was $1.45. It is expected that to sell, a new common stock issue must be underpriced at $2 per share and the firm must pay $0.75 per share in flotation costs. Additionally, the firm's marginal tax rate is 20 percent. Calculate the firm's weighted average cost of capital assuming the firm…IRIS Corp. has determined its optimal capital structure as image Debt: The firm can sell a 10-year, $1,000 par value, 7 percent bond for $950. A flotation cost of 3percent of the par value would be required in addition to the discount of $50. Preferred Stock: The firm has determined it can issue preferred stock at $45 per share par value. The stock will pay an $6.5 annual dividend. The cost of issuing and selling the stock is $2.5 per share. Common Stock: The firm's common stock is currently selling for $25 per share. The dividend expected to be paid at the end of the coming year is $3.75. Its dividend payments have been growing at a constant rate for the last five years. Five years ago, the dividend was $1.45. It is expected that to sell, a new common stock issue must be underpriced at $2 per share and the firm must pay $0.75 per share in flotation costs. Additionally, the firm's marginal tax rate is 20 percent. Calculate the firm's weighted average cost of capital assuming the firm…National Products Inc. wants to calculate its weighted average cost of capital (WACC).The company’s CFO has collected the following information:• The company has a long-term bond outstanding, valued at $20 million. The bond is a semiannualcoupon bond with 6% coupon rate, and 5 years left to maturity. The current price is $959.45 for$1,000 par value.• The company’s preferred stock pays a fixed dividend of $2 per share, and the preferred stockprice is $20.• The company’s common stock price is $32 a share, and recently paid a dividend of $2 a share.• The dividend is expected to grow at a constant rate of 6% per year.• The company has the target capital structure of $50 million in equity, $10 million in preferredstock and $20 million in debt.• The company’s tax rate is 40%. What is the company weighted average cost of capital?
- IRIS Corp. has determined its optimal capital structure as image Debt: The firm can sell a 10-year, $1,000 par value, 7 percent bond for $950. A flotation cost of 3percent of the par value would be required in addition to the discount of $50. Preferred Stock: The firm has determined it can issue preferred stock at $45 per share par value. The stock will pay an $6.5 annual dividend. The cost of issuing and selling the stock is $2.5 per share. Common Stock: The firm's common stock is currently selling for $25 per share. The dividend expected to be paid at the end of the coming year is $3.75. Its dividend payments have been growing at a constant rate for the last five years. Five years ago, the dividend was $1.45. It is expected that to sell, a new common stock issue must be underpriced at $2 per share and the firm must pay $0.75 per share in flotation costs. Additionally, the firm's marginal tax rate is 20 percent. Calculate the firm's weighted average cost of capital assuming the firm…National Products Inc. wants to calculate its weighted average cost of capital (WACC).The company’s CFO has collected the following information:• The company has a long-term bond outstanding, valued at $20 million. The bond is a semiannualcoupon bond with 6% coupon rate, and 5 years left to maturity. The current price is $959.45 for$1,000 par value.• The company’s preferred stock pays a fixed dividend of $2 per share, and the preferred stockprice is $20.• The company’s common stock price is $32 a share, and recently paid a dividend of $2 a share.• The dividend is expected to grow at a constant rate of 6% per year.• The company has the target capital structure of $50 million in equity, $10 million in preferredstock and $20 million in debt.• The company’s tax rate is 40%.a. What is the company’s before-tax cost of debt?Before-tax cost of debt = %b. What is the company’s cost of preferred stock?Cost of preferred stock = %c. What is the company’s cost of common stock?Cost of common stock =National Products Inc. wants to calculate its weighted average cost of capital (WACC).The company’s CFO has collected the following information:• The company has a long-term bond outstanding, valued at $20 million. The bond is a semiannualcoupon bond with 6% coupon rate, and 5 years left to maturity. The current price is $959.45 for$1,000 par value.• The company’s preferred stock pays a fixed dividend of $2 per share, and the preferred stockprice is $20.• The company’s common stock price is $32 a share, and recently paid a dividend of $2 a share.• The dividend is expected to grow at a constant rate of 6% per year.• The company has the target capital structure of $50 million in equity, $10 million in preferredstock and $20 million in debt.• The company’s tax rate is 40%.a. What is the company’s before-tax cost of debt?
- Doha plc has some surplus funds that it wishes to invest in bonds. The company requires a return of 15% on bonds, and the finance director has asked you to analyse whether it should invest in either of the following bonds that are available:Company A: Expected profit 12% bonds, redeemable at par at the end of two more years, with a current market value of QAR 95 per QAR 100 bondCompany B: Expected profit 8% bonds, redeemable at QAR110 at the end of two more years, with a current market value of QAR 95 per QAR 100 bonda. Calculate the expected value (price) of the two bonds and evaluate if either offer an appropriate return for Doha Plc.b. Critically evaluate what would be the impact on the price of bonds if Doha Plc reduces their required return.c. Critically evaluate and discuss the factors that should be considered by the directors of a company when choosing whether to use debt or equity finance for a new projectd. Recently one director has attended a finance conference, on their…IRIS Corp. has determined its optimal capital structure as follows: (ATTACHED) Debt: The firm can sell a 10-year, $1,000 par value, 7 percent bond for $950. A flotation cost of 3percent of the par value would be required in addition to the discount of $50. Preferred Stock: The firm has determined it can issue preferred stock at $45 per share par value. The stock will pay an $6.5 annual dividend. The cost of issuing and selling the stock is $2.5 per share. Common Stock: The firm's common stock is currently selling for $25 per share. The dividend expected to be paid at the end of the coming year is $3.75. Its dividend payments have been growing at a constant rate for the last five years. Five years ago, the dividend was $1.45. It is expected that to sell, a new common stock issue must be underpriced at $2 per share and the firm must pay $0.75 per share in flotation costs. Additionally, the firm's marginal tax rate is 20 percent. Calculate the firm's weighted average cost of capital…A firm is planning on issuing new bonds and equity. The semiannual bonds will have a coupon rate 9% with a maturity of 15 years. The preferred stock pays a dividend of $6. The common stock's current dividend is $2.50 with a growth rate of 7%. The flotation costs on bonds is 5%, 7% on preferred stocks and 10% on common stock. The tax rate is 35%. The current price of the bonds is $975 while the price of the common stock is $53.50 and $55 for the preferred stock. If the growth rate falls to 6%, what is change in the cost of external equity? external equity falls by 8.5% external equity falls by 7% external equity falls by 6.5% external equity falls by 6%
- IRIS Corp. has determined its optimal capital structure as follows. Debt: The firm can sell a 10-year, $1,000 par value, 7 percent bond for $950. A flotation cost of 3percent of the par value would be required in addition to the discount of $50. Preferred Stock: The firm has determined it can issue preferred stock at $45 per share par value. The stock will pay an $6.5 annual dividend. The cost of issuing and selling the stock is $2.5 per share. Common Stock: The firm's common stock is currently selling for $25 per share. The dividend expected to be paid at the end of the coming year is $3.75. Its dividend payments have been growing at a constant rate for the last five years. Five years ago, the dividend was $1.45. It is expected that to sell, a new common stock issue must be underpriced at $2 per share and the firm must pay $0.75 per share in flotation costs. Additionally, the firm's marginal tax rate is 20 percent. Calculate the firm's weighted average cost of capital assuming the…StangWay Corp. stock is trading for $23 per share. StangWay has 24 million shares outstanding and a market debt-equity ratio of 0.59. StangWay's debt is zero coupon debt with a 5-year maturity and a yield to maturity of 9% EAR (effective annual rate). a. Describe StangWay's equity as a call option. What is the maturity of the call option? What is the market value of the asset underlying this call option? What is the strike price of this call option? b. Describe StangWay's debt using a call option.A firm has determined its optimal capital structure, which is composed of the following sources and target market value proportions: Debt: The firm can sell a 20-year, $1,000 par value, 9 percent bond for $980. A flotation cost of 2 percent of the face value would be required in addition to the discount of $20. Preferred Stock: The firm has determined it can issue preferred stock at $65 per share par value. The stock will pay an $8.00 annual dividend. The cost of issuing and selling the stock is $3 per share. Common Stock: The firm's common stock is currently selling for $40 per share. The dividend expected to be paid at the end of the coming year is $5.07. Its dividend payments have been growing at a constant rate for the last five years. Five years ago, the dividend was $3.45. It is expected that to sell, a new common stock issue must be underpriced at $1 per share and the firm must pay $1 per share in flotation costs. Additionally, the firm's marginal tax rate is 40 percent.…