What are the capital structure weights

Assignment Help Financial Management

Reference no: EM131495316

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?

*Please show your work as best as possible including formulas,

Reference no: EM131495316

Questions Cloud

How financial statements vary across industries : How financial statements vary across industries. What are the differences between financial statement requirements for governmental and nonprofit organizations.

What is the loss to the financial institution : What is the loss to the financial institution? Assume that 6-month LIBOR was 9% per annum halfway through year 3.

Take any risks with the currency fluctuation : You are a CFO of Tattoos and Piercings, International, the US based corporation. You do not want to take any risks with the currency fluctuation.

What should be your interest rate : Suppose you have $100 to invest. If you want to receive $500 in 10 years, what should be your interest rate?

What are the capital structure weights : What is the total market value of the firm? What are the capital structure weights?

What are some advantages of bonds : What are some advantages of bonds? What are some disadvantages to bonds?

How were individuals and businesses affected by credit risks : How were banks affected by the credit risks? How were individuals and businesses affected by the credit risks?

What is the expected rate of return of the market portfolio : What is the expected rate of return of the market portfolio?

Investment to maturity then what will her annualized yield : If Sara decides to hold this investment to maturity then what will her annualized yield be?

User Account

All Pages