Calculating the capital structure weights

Reference no: EM131956552

Question: Common shares of App Invent Inc. have a beta of 0.9.The market risk premium is 8 percent, and T-bills are currently yielding 1 percent. The company's most recent dividend was $1.50 per share, and dividends are expected to grow at a 3 percent annual rate indefinitely. The stock sells for $30 per share. Therefore, its cost of equity is 8.20% using the SML approach and 8.15% using the DGM approach giving an average cost of equity result of 8.175%.

App Invent Inc. also has an issue of preferred stock with a $6 stated dividend that just sold for $90 per share. Therefore the firm's cost of preferred stock is 6.67%.

App Invent Inc. issued a 30-year bond 20 years ago with a 10% coupon rate, compounded semi-annually. The bond currently sells for 117.5 percent of its face value. The company's tax rate is 40 percent. Therefore, the pre-tax cost of debt is 7.48% and the after-tax cost of debt is 4.49%.

Other information:

- App Invent Inc. has 600,000 shares of common equity outstanding.

- App Invent Inc. has 50,000 preferred shares outstanding.

- App Invent Inc. has 150 bonds outstanding, each with a $100,000 face value.

Use the information calculated above along with the provided jot notes to calculate the following:

1) What is the total market value of the firm?

2) What are the capital structure weights?

3) What is the firm's WACC?

Reference no: EM131956552

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