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During the last few years, Jana industries has been too constrained by the high cost of capital to make many capital investments. Recently, though, money costs have been declining, and the company has decided to look seriously at a major expansion program that had been proposed by the marketing department. Assume that you are an assistant to the Leigh Jones the financial vice president. Your first task is to estimate Jana cost of capital. You have been provided with the following data, which may be relevant to your task: The firm's tax rate is 40 percent. The current price of Jana 12% coupon, semiannual payment, noncallable bonds with 15 years remaining to maturity is $1,153.72. Jana does not use short-term interest-bearing debt on a permanent basis. New bonds would be privately placed with no flotation cost. The current price of the firm's 10%, $100 par value, perpetual preferred stock is $116.95. Jana would incur flotation costs equal to 5% per share on a new issue. Jana common stock is currently selling at $50.00 per share. Its last dividend (D0) was $3.12, and dividends are expected to grow at a constant rate of 5.8% percent in the foreseeable future. Jana beta is 1.2; the yield on t-bonds is 5.6%; and the market risk premium is estimated to be 6% . For the bond-yield-plus-risk-premium approach, the firm uses a 3.2% point risk premium. Jana uses all three estimates of the cost of the common equity component in an equally weighted manner. New common stock would incur a flotation cost of 15%. Jana target capital structure is 30 percent long-term debt, 10 percent preferred stock, and 60 percent common equity. PLEASE ANSWER THE FOLLOWING 3 QUESTION.
1. What are the two primary ways companies raise common equity?
2. Why is there a cost associated with reinvested earnings?
3. Jana doesn’t plan to issue new shares of common stock. Using the CAPM approach, what is Jana’s estimated cost of equity?
Suppose a soybean producer planted 2, 000 acres - with an average yield of 40 bushel an acre. Current soybean prices are $I0/bushel, but are expected to fall. The producer can enter into a 4 month futures contact at a price of $9.50/bushel. Suppose a..
You own 12 put option price contracts on stock. You paid an option premium of $1.12 for a strike price of $47.50. On the option expiration date, the stock was selling for $46.30 a share. What is your percentage return?
Which of the following best describes inflation risk?
Suppose that the current 90 day London interbank offer rate is 11% (all rates are stated on an annualized basis). Which one of the following have NOT led to a closer relationship between interest rates in national and Euro currency money markets? Sup..
A firm's bonds have a maturity of 15 years wuth a $1,000 face value, A 10 percent semiannual coupon, What is the yield to call?
Free cash flow valuation Nabor Industries is considering going public but is unsure of a fair offering price for the company. Estimate the value of Nabor Industries' entire company by using the free cash flow valuation model. Use your finding in part..
A property is expected to have NOI of $100,000 the first year. Calculate the investor’s before-tax IRR.
A bond's market price is $1,200. It has a $ 1,000 par value, will mature in 14 years, and has a coupon interest rate of 9 percent annual interest, but makes its interest payments semiannually. What is the bond's yield to maturity? What happens to the..
Complete the Valuation, Markets, Agency Problems, Forms of Business, Basic Accounting Concepts, Cash Cycle of a Typical Firm, and Translating Accounting Profits into Cash Flows modules in the RealizeIt platform.
Which account would be preferred by a depositor: an 8 percent annual percentage rate (APR) with monthly compounding or 8.1 percent annual percentage rate (APR) with semi-annual compounding?
Modern Times ltd has 15,000,000 shares outstanding. It wishes to issue 3,000,000 new shares via a rights issue. If the current stock price is 50 and the subscription price is 45 per share, calculate the value of a right to the holder of that right.
Discuss the concept of value. Define it, give examples. What is return? Are there competing definitions of return? What are they? Which is the best? What is risk in Finance? What determines the coe? How does coe affect value if at all? Why? Does retu..
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