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Calculate current total market value of the firm

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Reference no: EM133495873

The following information is extracted from Farm Fresh LTD.

Per the company's financial records, they have $3,000,000 in bonds (Face value). The agreed coupon payment is 9% per annum, and the before-tax yield to maturity is 8%. This bond is selling at $115 per share, and the face value of each bond is $100.

The company has 46,000 outstanding Ordinary shares, and currently selling for $50 per share. The firm expects to pay a $5.50 dividend per share one year from now and is experiencing a 4% growth rate in dividends, which it expects to continue indefinitely.

The firm's marginal tax rate is 30%. The company has no plans to issue new securities.

1. Calculate the current total market value of the firm.

2. Calculate the weighted average cost of capital (WACC) for the firm

3. Why is it important to use market-based weights rather than balance sheet weights when estimating a company's weighted average cost of capital?

4. Why would it be inappropriate for the company's management to use the WACC calculated above for the evaluation of a new project with different risks from the current projects?

Reference no: EM133495873

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