Problem 13-11 Finding the WACC You are given the following information for Huntington Power Company. Assume the company's tax rate is 23 percent. Debt: Common stock: Market: 32,000 5.1 percent coupon bonds outstanding, $2,000 par value, 22 years to maturity, selling for 106 percent of par; the bonds make semiannual payments. 480,000 shares outstanding, selling for $78 per share; the beta is 1.12. 8 percent market risk premium and 4.3 percent risk-free rate. What is the company's WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) WACC %

Problem 13-11 Finding the WACC You are given the following information for Huntington Power Company. Assume the company's tax rate is 23 percent. Debt: Common stock: Market: 32,000 5.1 percent coupon bonds outstanding, $2,000 par value, 22 years to maturity, selling for 106 percent of par; the bonds make semiannual payments. 480,000 shares outstanding, selling for $78 per share; the beta is 1.12. 8 percent market risk premium and 4.3 percent risk-free rate. What is the company's WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) WACC %

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter11: Determining The Cost Of Capital

Section: Chapter Questions

Problem 9P: Bond Yield and After-Tax Cost of Debt A companys 6% coupon rate, semiannual payment, 1,000 par value...

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RECAPITALIZATION Currently, Bloom Flowers Inc. has a capital structure consisting of 20% debt and 80% equity. Blooms debt currently has an 8% yield to maturity. The risk-free rate (rRF) is 5%, and the market risk premium (rM rRF) is 6%. Using the CAPM, Bloom estimates that its cost of equity is currently 12.5%. The company has a 40% tax rate. a. What is Blooms current WACC? b. What is the current beta on Blooms common stock? c. What would Blooms beta be if the company had no debt in its capital structure? (That is, what is Blooms unlevered beta, bU?) Blooms financial staff is considering changing its capital structure to 40% debt and 60% equity. If the company went ahead with the proposed change, the yield to maturity on the companys bonds would rise to 9 5%. The proposed change will have no effect on the companys tax rate. d. What would be the companys new cost of equity if it adopted the proposed change in capital structure? e. What would be the companys new WACC if it adopted the proposed change in capital structure? f. Based on your answer to Part e, would you advise Bloom to adopt the proposed change in capital structure? Explain.
Problem 13-11 Finding the WACC You are given the following information for Huntington Power Company. Assume the company's tax rate is 25 percent. Debt: 34,000 5.3 percent coupon bonds outstanding, $2,000 par value, 26 years to maturity, selling for 106 percent of par; the bonds make semiannual payments. Common stock: 490,000 shares outstanding, selling for $80 per share; the beta is 1.14. Market: 6 percent market risk premium and 4.5 percent risk-free rate. What is the company's WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) WACC %
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RECAPITALIZATION Currently, Forever Flowers Inc. has a Capital structure consisting of 25% debt and 75% equity. Forever's debt currently has a 7% yield to maturity. The risk-free rate (rRF) is 6%and the market risk premium (rMrRF) is 7%. Using the CAPM, Forever estimates that its cost of equity is currently 14.5%. The company has a 40% tax rate. a. What is Forevers current WACC? b. What is the current beta on Forevers common stock? c What would Forever's beta be if the company had no debt in its capital structure? (That is, what is Forever's unlevered beta, buy? Forever's financial staff is considering changing its capital structure to 40% debt and 60% equity. If the company went ahead with the proposed change, the yield to maturity on the company's bonds would rise to 10.5%. The proposed change will have no effect on the companys tax rate d What would be the companys new cost of equity if it adopted the proposed change in capital structure? e. What would be the company's new WACC if it adopted the proposed change in capital structure? f. Based on your answer to part e, would you advise Forever to adopt the proposed change in capital structure? Explain.
P 13-15 (book/static) Question Help AllCity, Inc., is financed 40% with debt, 10% with preferred stock, and 50% with common stock. Its cost of debt is 6%, its preferred stock pays an annual dividend of $2.50 and is priced at $30. It has an equity beta of 1.1. Assume the risk-free rate is 2%, the market risk premium is 7% and AllCity's tax rate is 35%. What is its after-tax WACC? Note: Assume that the firm will always be able to utilize its full interest tax shield. The WACC is 6.41 %. (Round to two decimal places.)
Consider the following for watson power company. Debt 5,500 6.5% coupon bonds outstanding. 1,000 par value, 22 years to maturity, selling for 104% of par, semi-annual payments Common Stock 1325,000 shares outstanding selling for $63/share. Beta is 1.19 Preferred Stock 18,000 6 % preferred stock outstanding selling for $107/share. Market 8% market risk premium, 6% risk-free rate Company's tax rate is 34% What is WACC?
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Question: 4 S.ALAM group financed using the following weights: 35% long term debt, 15% preferred stock and 40% common stock equity, and 10% retained earnings. The firm’s corporate tax rate is 38% The firm can sell for tk. 990 an 8 years bond, Tk. 1000 par-value bond paying at an 11% coupon rate, flotation cost of per bond is 3.75% and under pricing by 2%. Eleven percent (annual dividend) preferred stock having a par value of tk. 100 can be sold for tk. 85. An additional fee of tk. 5 per share must be paid to the underwriters. The firm’s common stock currently selling for tk. 55 per share. The dividend expected to be paid at the end of the year is Tk. 5.35 per share. Dividends have been growing at an annual rate of 8.5%. Moreover, underwriting fees per share Tk. 7. Calculate the WACC of the project and implications of investment decisions. b.The following two mutually…
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You are given the following information for Lighting Power Company. Assume the company's tax rate is 25 percent. Debt: Common stock: 430,000 shares outstanding, selling for $61 per share; the beta is 1.12. 18,500 shares of 3.7 percent preferred stock outstanding, a $100 par value, currently selling for $82 per share. 6 percent market risk premium and 4.7 percent risk-free rate. What is the company's WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g.. 32.16.) Preferred stock: Market: 10,000 5.9 percent coupon bonds outstanding. $1,000 par value, 25 years to maturity, selling for 107 percent of par; the bonds make semiannual payments. WACC %