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Company X is calculating its WACC. The firm’s common stock just paid a dividend of $4.5 per share and now is selling for $80. The firm’s financial staff estimates the company’s new product will generate a dividend growth rate of 7%. Today the firm issued 7000 bonds that will mature in 15 years with $1,000 face value. These bonds will pay a 9% coupon rate quarterly and are currently selling for $970. The firm has 100K preferred shares of stock outstanding with a book value of $45, but currently selling for $55 per share. The last preferred dividend payments were $3.5 per share. The firm’s tax rate is 40%. The firm has 200K shares of common stock outstanding with the same book value as that of its preferred stock.
Calculate the book value weights for each source of capital.
Calculate the market value weights for each source of capital.
Calculate the before-tax and after tax componenet cost of capital
Determine the after tax weighted average costs of capital using both market and the book value weights.
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Marcus Nurseries Inc's 2005 balance sheet showed total common equity of $2, 050,000, which included $1, 750,000 of retained earnings. The company had 100,000 shares of stock outstanding which sold at a price of $57.25 per share. If the firm had net i..
Winegartner Cosmetics is setting up a line of credit at its bank for $5 million for up to two years. The interest rate is 7.19 percent and the loan agreement calls for an annual fee of 47 basis points on any unused balance for the year. If the firm b..
Pullman Corp issued 10-year bonds four years ago with a coupon rate of 10.07 percent. At the time of issue, the bonds sold at par. Today bonds of similar risk and maturity must pay an annual coupon of 6.39 percent to sell at par value. Assuming semi ..
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Your firm is contemplating the purchase of a new $636,000 computer-based order entry system. The system will be depreciated straight-line to zero over its six-year life. It will be worth $43,000 at the end of that time. If the tax rate is 30 percent,..
The weighted average cost of capital (ka or WACC) is based on the costs of debt only because it is the cheapest sources of the capital.
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