Western Electric has 35,000 ordinary shares outstanding at a price per share of $47 and a rate of return of 13.5%. The firm has 5,000 preference shares paying 7% dividend outstanding at a price of $58 a share. The preferred share has a par value of $100. The outstanding bond has a total face value of $450,000 and currently sells for 1029% of face. The pre-tax yield-to-maturity on the bond is 8.49%. Required: a) Calculate the total market value of the firm. b) Calculate the capital structure of the firm places) c) Calculate the firm's weighted average cost of capital if the tax rate is 30%, assuming a classical tax (Please round up the result at 3 decimal system.

Western Electric has 35,000 ordinary shares outstanding at a price per share of $47 and a rate of return of 13.5%. The firm has 5,000 preference shares paying 7% dividend outstanding at a price of $58 a share. The preferred share has a par value of $100. The outstanding bond has a total face value of $450,000 and currently sells for 1029% of face. The pre-tax yield-to-maturity on the bond is 8.49%. Required: a) Calculate the total market value of the firm. b) Calculate the capital structure of the firm places) c) Calculate the firm's weighted average cost of capital if the tax rate is 30%, assuming a classical tax (Please round up the result at 3 decimal system.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Apel Investment Company has GH¢1,800,000 of interest-bearing bond outstanding. The outstanding bonds have a 11% coupon and a 14% yield to maturity. Management believes they could issue new bonds at a premium of 105% that would provide a similar yield to maturity. Also, the company’s prepared stock currently stands at GH¢1,200,000 and trades at GH¢60.00 per share. The company pays a dividend of GH¢3.00 per share. Furthermore, the company’s common stock sells for GH¢15.00 per share with 200,000 shares in issue. The company has a beta of 1.2, whiles the government’s T-Bill has an interest rate of 12%, with a 18% average return on the market. The company’s marginal tax rate is 40%.Management is considering investing in a new project, the details of which are as follows:GH¢ Project cost 2,000,000.00Estimated net profit: Year 1 (22,000.00) Year 2 192,000.00 Year 3 300,000.00Year 4 270,000.00Year 5 180,000.00Additional information; Depreciation is based on the straight line method. The…
Apel Investment Company has GH¢1,800,000 of interest-bearing bond outstanding. The outstanding bonds have a 11% coupon and a 14% yield to maturity. Management believes they could issue new bonds at a premium of 105% that would provide a similar yield to maturity. Also, the company’s prepared stock currently stands at GH¢1,200,000 and trades at GH¢60.00 per share. The company pays a dividend of GH¢3.00 per share. Furthermore, the company’s common stock sells for GH¢15.00 per share with 200,000 shares in issue. The company has a beta of 1.2, whiles the government’s T-Bill has an interest rate of 12%, with a 18% average return on the market. The company’s marginal tax rate is 40%.Management is considering investing in a new project, the details of which are as follows:GH¢ Project cost 2,000,000.00Estimated net profit: Year 1 (22,000.00) Year 2 192,000.00 Year 3 300,000.00Year 4 270,000.00Year 5 180,000.00Additional information; Depreciation is based on the straight line method. The…
MoMahon Ltd currently has $300 million of market value debt outstanding. The 9 percent coupon bonds (semi-annual pay) have a maturity of 15 years and are currently priced at $1,550.04 per bond. The face value of the bond is $1,000. The company also has an issue of 1 million preference shares outstanding with a market price of $24.00. The preference shares offer an annual dividend of $2.40. McMahon Ltd also has 7 million ordinary shares outstanding with a price of $40.00 per share. The company is expected to pay a $4.4 ordinary dividend one year from today, and that dividend is expected to increase by 6 per cent per year forever. If the corporate tax rate is 30 per cent, then what is the company’s weighted average cost of capital (WACC)?
Apel Investment Company has GH¢1,800,000 of interest-bearing bond outstanding. The outstanding bonds have a 11% coupon and a 14% yield to maturity. Management believes they could issue new bonds at a premium of 105% that would provide a similar yield to maturity. Also, the company’s prepared stock currently stands at GH¢1,200,000 and trades at GH¢60.00 per share. The company pays a dividend of GH¢3.00 per share. Furthermore, the company’s common stock sells for GH¢15.00 per share with 200,000 shares in issue. The company has a beta of 1.2, whiles the government’s T-Bill has an interest rate of 12%, with a 18% average return on the market. The company’s marginal tax rate is 40%.Management is considering investing in a new project, the details of which are as follows:GH¢ Project cost 2,000,000.00Estimated net profit: Year 1 (22,000.00) Year 2 192,000.00 Year 3 300,000.00Year 4 270,000.00Year 5 180,000.00Additional information; Depreciation is based on the straight line method. The…
Charter Corp. issued 2,234 debentures with a $1,000 par value and 5% coupon rate. a. What dollar amount of interest per bond can an investor expect to recieve each year from Charter? b. What is Charter's total interest expense per year associated with this bond issue? c. Assuming that Charter pays a 21% corporate tax, what is the company's net after tax interest cost associated with this bond issue?
SMN Inc.'s bonds currently sell for $1,123. They have a 11-year maturity, an annual coupon of 7.05%, and a par value of $1,000. What is their capital gains yield? -0.7499% O 0.7499% O 5.5416% O6.2778% O5.5279%
Phillips Equipment Inc. has 72,000 bonds outstanding that are each selling at $1,066 in the market. Each bond has 8 years left to maturity, a $1000 face value and a coupon rate of 5%. Coupons are paid semiannually. The company also has 1.9 million shares of common stock outstanding. The common stock has a beta of 1.35 and sells for $44 a share. The U.S. Treasury bill is yielding 3.1 percent and the return on the market is 9.5 percent. The corporate tax rate is 35 percent. (a) Determine the firms market value weight for debt (Enter answers as a % to 2 decimal places) 8.41 % (b) Determine the firms market value weight for equity (Enter answers as a % to 2 decimal places) 91.59 % (c) What is the firms after tax cost of debt? (Enter answers as a % to 2 decimal places) 2.81% (d) What is the firms cost of equity? (Enter answers as a % to 2 decimal places) 11.74 % (e) Using the information you have found in the earlier parts, determine the Cost of Capital for Phillips Equipment Inc. (Enter…
Lionel Company has 1,500 units of bonds outstanding. Each unit has $100 face value, 6% coupon rate with semi-annual payments, and 15 years to maturity. The risk-free rate is 3%, default risk premium for its bond is 2%, maturity risk premium for 15-year maturity is 1.5 % & has a tax rate of 20%. 1. (a) Determine the required rate of return for its bonds, (b) the amount of tax savings, and (c) the after tax cost of debt. 2. Determine (a) the value of coupon payments, (b) the value of principal payment, and (c) total value of per unit of bond. (d) Determine total market value of all bonds outstanding.
Charter Corp. issued1,662 debentures with a $1,000 par value and 6% coupon rate. a. What dollar amount of interest per bond can an investor expect to receive each year from Charter? b. What is Charter's total interest expense per year associated with this bond issue? c. Assuming that Charter pays a 21% corporate tax, what is the company's net after-tax interest cost associated with this bond issue?
Exxa Capital Berhad's capital are as follows: Bonds: The company's callable bond was sold for RM924 and will be redeemed at RM1300 per unit. The bond has a maturity of 25 years with semi- annual coupon of 5.8% per annum. Preferred stocks: The dividend rate is 12% on a par value of RM100, and the interest rate is 6.75% . Common stocks: The company paid dividend for financial year ending 2022 for RM0.038 per unit. The current rate of return is 6.18% and the constant growth dividend is 4%. New bonds: As part of the company's expansion new bonds issuance is planned at the end of 2024. The bond maturity is 25 years, quarterly coupon at a rate of 1 1. Calculate the bond's annual yield to maturity. 2. Calculate the price of the preferred stock. 3. Calculate the current price of the common stock. 4. Calculate the net proceed of the bond issuance. 5. Calculate the net proceed of the bond issuance.
Exxa Capital Berhad's capital are as follows: Bonds: The company's callable bond was sold for RM924 and will be redeemed at RM1300 per unit. The bond has a maturity of 25 years with semi - annual coupon of 5.8% per annum. Preferred stocks: The dividend rate is 12% on a par value of RM100, and the interest rate is 6.75%. Common stocks: The company paid dividend for financial year ending 2022 for RM0.038 per unit. The current rate of return is 6.18% and the constant growth dividend is 4%. New bonds: As part of the company's expansion new bonds issuance is planned at the end of 2024. The bond maturity is 25 years, quarterly coupon at a rate of 1 1. Calculate the bond's annual yield to maturity. 2. Calculate the price of the preferred stock. 3.Calculate the current price of the common stock. 4. Calculate the net proceed of the bond issuance. 5.Calculate the net proceed of the bond issuance.
Assume that Almond Milk Company has a $1,000 face value bond with a stated coupon rate of 8.18 percent that is convertible into its common stock at $35.77. The bond is selling at $1,096.27 in the market. The common stock is selling for $33.84 and pays a dividend of 0.62 per share. Calculate the payback premium period.

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