Please help me solve this question using Excel Problem 12-14 Finding the WACC [LO3]You are given the following information for Lightning Power Company. Assume the company's tax rate is 23percent.Debt:Common stock:Preferred stock:Market:23,000 7.2 percent coupon bonds outstanding, $1,000 par value, 19 yearsto maturity, selling for 106 percent of par; the bonds make semiannualpayments.560,000 shares outstanding, selling for $74 per share; beta is 1.17.25,000 shares of 5 percent preferred stock outstanding, a $100 parvalue, selling for $95 per share.7 percent market risk premium and 5.1 percent risk-free rate.What is the company's WACC?Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places,e.g., 32.16.WACC%

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EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter11: The Cost Of Capital

Section: Chapter Questions

Problem 1PROB

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Problem 12-11 Finding the WACC You are given the following information for Tara Ita Power Co. Assume the company’s tax rate is 22 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?
Problem 13-11 Finding the WACC You are given the following information for Huntington Power Company. Assume the company's tax rate is 25 percent. Debt: 34,000 5.3 percent coupon bonds outstanding, $2,000 par value, 26 years to maturity, selling for 106 percent of par; the bonds make semiannual payments. Common stock: 490,000 shares outstanding, selling for $80 per share; the beta is 1.14. Market: 6 percent market risk premium and 4.5 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.) WACC %
Problem 11-10 Spreadsheet Problem: WACC (LG11-3) Johnny Cake Limited has 8 million shares of stock outstanding selling at $18 per share and an issue of $40 million in 8 percent annual coupon bonds with a maturity of 17 years, selling at 92.0 percent of par. Assume Johnny Cake's weighted-average tax rate is 21 percent, it cannot make use of interest tax shields for the foreseeable future, its next dividend is expected to be $3 per share, and all future dividends are expected to grow at 4 percent per year, indefinitely. What is its WACC? Note: Do not round intermediate calculations. Round your final answer to 2 decimal places. WACC
Problem 19-3 WACC Consider the following information for Federated Junkyards of America. • Debt: $80,000,000 book value outstanding. The debt is trading at 95% of book value. The yleld to maturity is 9%. Equity. 3,000,000 shares selling at $47 per share. Assume the expected rate of return on Federated's stock is 18%. • Taxes: Federated's marginal tax rate Is Tc = 0.21. Calculate the weighted-average cost of capital (WACC). (Do not round Intermedlate calculatlons. Enter your answer as a percent rounded to 2 decimal places.) Weighted-average cost of capital 3.54 %
Problem 13-5 Calculating WACC (LO1) The total book value of WTC’s equity is $7 million, and book value per share is $14. The stock has a market-to-book ratio of 1.5, and the cost of equity is 12%. The firm’s bonds have a face value of $4 million and sell at a price of 110% of face value. The yield to maturity on the bonds is 9%, and the firm’s tax rate is 21%. What is the company’s WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Question 5/2 Treasure Island Ltd. currently has the following capital structure: Debt: $3,500,000 par value of outstanding non-callable bond that pays annually 10% coupon rate with an annual before-tax yield to maturity of 8.5%. The bond issue has face value of $1,000/bond and will mature in 20 years. Ordinary shares: 70,000 outstanding ordinary shares. The firm plans to pay a $4.50 dividend per share in the next financial year. The firm is maintaining 5% annual growth rate in dividend, which is expected to continue indefinitely. Preferred shares: 45 000 outstanding preferred shares with face value of $100, paying fixed dividend rate of 13%. Company tax rate is 30%. Required: Complete the following tasks: A) Calculate the current market value (rounded off to the nearest whole number) and capital structure of the firm (rounded off to two decimal places). Identify the total…
Problem 18-4 WACC Use the following information: Debt: $69,000,000 book value outstanding. The debt is trading at 95% of book value. The yield to maturity is 10%. Equity: 1,900,000 shares selling at $36 per share. Assume the expected rate of return on Federated's stock is 19%. • Taxes: Federated's marginal tax rate is Tc = 0.21. ● ● Suppose Federated Junkyards decides to move to a more conservative debt policy. A year later, its debt ratio is down to 16.50% (D/V= 0.1650). The pre-tax cost of debt has dropped to 9.6%. The company's business risk, opportunity cost of capital, and tax rate have not changed. Use the three-step procedure to calculate Federated's WACC under these new assumptions. Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. > Answer is complete but not entirely correct. Weighted-average cost of capital 14.59 X %
Question 9 Blue Sky Corporation is planning to issue $1,000O par value bonds. The bonds will have a coupon rate of 14 percent and will be sold at a market price of $1050. Flotation costs will amount to 6 percent of market value. The bonds will mature in 15 years and interest payments will be made semi-annually. The company's marginal tax rate is 21%. What is the firm's after-tax cost of debt financing? 9.38% 11.06% O 11.23% 14.00% 14.21%
Question 5 Treasure Island Ltd. currently has the following capital structure: Debt: $3,500,000 par value of outstanding non-callable bond that pays annually 10% coupon rate with an annual before-tax yield to maturity of 8.5%. The bond issue has face value of $1,000/bond and will mature in 20 years. Ordinary shares: 70,000 outstanding ordinary shares. The firm plans to pay a $4.50 dividend per share in the next financial year. The firm is maintaining 5% annual growth rate in dividend, which is expected to continue indefinitely. Preferred shares: 45 000 outstanding preferred shares with face value of $100, paying fixed dividend rate of 13%. Company tax rate is 30%. Required: Complete the following tasks: a) Calculate the current price of the corporate bond? b) Calculate the current price of the ordinary share if the average return of the shares in the same industry is 11%?…
Problem 17-26 Payout Policy and Taxes (LO4) Good Values Inc. is all-equity-financed. The total market value of the firm currently is $140,000, and there are 4,000 shares outstanding. Ignore taxes. a. The firm has declared a $5 per share dividend. The stock will go ex-dividend tomorrow. At what price will the stock sell today? b. At what price will the stock sell tomorrow? c. Now assume that the tax rate on all dividend income is 30% and the tax rate on capital gains is zero. At what price will the stock sell today, taking account of the taxation of dividends? (Do not round intermediate calculations. Round your answer to 2 decimal places.) d. Now suppose that instead of paying a dividend, Good Values plans to repurchase $14,000 worth of stock. What will be the stock price before the repurchase? e. What will it be after the repurchase? f. Does the existence of taxes tend to favor dividends or repurchases? Answer is not complete. a. Stock price $ 35 O b. Stock price $ 30 O Stock price $…
S14-15 Finding the WACC [LO3] You are given the following information for Lightning Power Company. Assume the company's tax rate is 21 percent. Debt: 12,000 bonds with a 4.6 percent coupon outstanding, $1,000 par value, 25 years to maturity, selling for 105 percent of par; the bonds make semiannual payments. Common stock: 575,000 shares outstanding, selling for $81 per share; the beta is 1.04. Preferred stock: Market: 30,000 shares of 3.4 percent preferred stock outstanding, a $100 par value, currently selling for $94 per share. 7 percent market risk premium and 3.2 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.) WACC %
RECAPITALIZATION Currently, Bloom Flowers Inc. has a capital structure consisting of 20% debt and 80% equity. Blooms debt currently has an 8% yield to maturity. The risk-free rate (rRF) is 5%, and the market risk premium (rM rRF) is 6%. Using the CAPM, Bloom estimates that its cost of equity is currently 12.5%. The company has a 40% tax rate. a. What is Blooms current WACC? b. What is the current beta on Blooms common stock? c. What would Blooms beta be if the company had no debt in its capital structure? (That is, what is Blooms unlevered beta, bU?) Blooms financial staff is considering changing its capital structure to 40% debt and 60% equity. If the company went ahead with the proposed change, the yield to maturity on the companys bonds would rise to 9 5%. The proposed change will have no effect on the companys tax rate. d. What would be the companys new cost of equity if it adopted the proposed change in capital structure? e. What would be the companys new WACC if it adopted the proposed change in capital structure? f. Based on your answer to Part e, would you advise Bloom to adopt the proposed change in capital structure? Explain.

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