0 WACC Estimation The owing to gives the balance sheet for Travelers Inc (u), acompany that was formed by merying a number of regional motel chains Travellers Inn (Hillions of dollars) 10 $10 20 Acer 1 receivable 20 Short-term debt Current $50 Current les 5 25 et des 50 Long-term det 30 Preferred stock (50,000 shares) 5 Common Common stock 2,000,000 ware) 10 Retained carings 30 Total como quity 5100 1100 The following facto wo wply to 1. The long-term de contests or 29 12 bonde, nach raving maturity, semennus payments, coupe rate of 941 and feel of 81,000. Currently, the bonds provide restors with a vaid to maturity of a few bonds were sold, they would have an 11AN Vito maturity 2. Tils perpetual preferred stock has a $100 par valu, Suarterly dividendesha of S3, and have to investors of 10 New perpetua preferred stock would have to provide the veld in its and the company would incur a 3,65% notation costoselit the completion whares of common stock outstanding, hare 20 vidend per eres, and earnings per share. The return equity (OE) is expected to be 10 4. The ab 1. The band rate and is estimated to be financial resident recently Delled some pasion fund investment managers who holds a wet mineurs fratum en common would make them willing to buy the common rather than the bonds, given that the bonds Veided 11. The pressed and premium ver The 4 percentage nots. the state tax bracket Assume that you were recently red by Tinancial analyst and that your brothers had you to use the company's WACC nder the motion that one without call here for use in ting jeder in the same on the Tower Based on your analysis, whewer the following question. Do not round deal Whet me the current are wela wrot pred stock, and common oder Do your work in ars, not tons of amlars) Weight Pehred to What out of dete? Weight Debt Preferred stock Common stock b. What is the after-tax cost of debe? What is the cost of preferred stock? What is the required return on common stock using CAPNO e Use the retention growth equation to estimate the expected growth rate. Then use the expected growth rate and the avand growth model to estimate the required return on common stoc What is the required return on common stock using the own-bond-velo-plus-judgmental riak premium approach What is Traveller WACC) Use the required return on stock from parte $ 10 15 0 Travellers Inni (Millions of Dollars) Cash $ 10 Accounts payable Accounts 20 Accruals receivable Inventories 20 Short-term debt Current assets $ 50 Current liabilities $ 25 Net fixed assets 50 Long-term debt 30 Preferred stock (50,000 shares) 5 Common equity Common stock (3,800,000 shares) $ 10 Retained earnings 30 Total common equiry $ 40 Total assets $100 Total abilities and equity $100 The following facts also apply to the 1. The long-term debt consists of 29,412 bonds, each having a 25-year maturity, semiannual payments, #coupon rate of 7.4%, and a face value of $1,000. Currently, these bonds provide investors with a yield to maturity of 11.8%. If new bonds were sold, they would have an 11.8% yield to maturity 2. Til's perpetual preferred stock has a $100 par value, pays a quarterly dividend per share of $3, and has a yield to investors of 10%. New perpetual preferred stock would have to provide the same yield to investors, and the company would incur a 3.65%, flotation cost to sell it 3. The company has 3.8 million shares of common stock outstanding, a price per share=Po - $20, dividend per share - D - $1, and earnings per share - EPS $. The return on equity (ROE) is expected to be 10% 4. The stock has a beta of 1.6. The T-bond rate is 74, and RP is estimated to be 5% 5. Til's financial vice president recently polled some pension fund investment managers who hold Tit's securities regarding what minimum rate of return on this common would make them willing to buy the common rather than I bonds, given that the bonds yielded 11.8%. The responses suggested a risk premium over Tu bonds of 4 percentage points. 6. THI is in the 25% federal-plus-state tax bracket Assume that you were recently hired by Til as a financial analyst and that your boss, the treasurer, has asked you to estimate the company's WACC under the assumption that no new equity will be issued. Your cost of capital should be appropriate for use in evaluating projects that are in the same risk class as the assets TT now operates. Based on your analysis, answer the following questions. De not round intermediate calculations Round your answers to two decimal places. a. What are the current market value weights for debt, preferred stock, and common stock? (Hint: Do your work in dollars, not millions of dollars.) Weight Dett Preferred stock Common stock b. What is the after-tax cost of debt? What is the cost of preferred stock? d. What is the required return on common stock using CAPM? D. What is the after-tax cost of debt? What is the cost of preferred stock? d. What is the required return on common stock using CAPM? e. Use the retention growth equation to estimate the expected growth rate. Then use the expected growth rate and the dividend growth model to estimate the required return on common stock 1. What is the required return on common stock using the own-bond-yield-plus-judgmental-risk-premium approach? What is Travellers' WACC? Use the required returns on stock from parte. $ 10 15 0 Travellers Inna (Millions of dollars) Cash $ 10 Accounts payable Accounts 20 Accruals receivable Inventories 20 Short-term debt Current assets $ 50 Current liabilities Net fixed assets 50 Long-term debt Preferred stock (50,000 shares) Common equity Common stock (3,800,000 shares) Retained earnings Total common equity Total assets $100 Total abilities and equity $ 25 30 5 $ 10 30 $40 $100 The following facts also apply to The following facts also apply to THL: 1. The long-term debt consists of 29,412 bonds, each having a 25-year maturity, semiannual payments, a coupon rate of 7.4%, and a face value of $1,000. Currently, these bonds provide investors with a yield to maturity of 11.8%. If new bonds were sold, they would have an 11.8% yield to maturity 2. TIT's perpetual preferred stock has a $100 par value, pays a quarterly dividend per share of $3, and has a yield to investors of 10%. New perpetual preferred stock would have to provide the same yield to investors, and the company would incur a 3.65% flotation cost to sell it. 2. The company has 3.5 milion shares of common stock outstanding, a price per share=Po - $20, dividend per share Do $1, and earnings per share -EPSO - $5. The return an equity (ROE) expected to be 10%. 4. The stock has a beta of 1.6. The T-bond rate is and RPM is estimated to be 5% 5. Tils financial vice president recently polled some pension fund investment managers who hold Tirs securities regarding what minimum rate of return on Tit's common would make them willing to buy the common rather than Th bonds, given that the bonds yielded 11.8%. The responses suggested a risk premium over Th bonds of 4 percentage points. 6. THis in the 25 federal-plus-state tax bracket. Musume that you were recently hired by Is a financial analyst and that your bow, the tremurer, has asked you to estimate the company'. WACC under the motion that no new equity will be seed. Your cost of capital should be appropriate for use in evaluating projects that are in the same risk ass as the now operates based on your analysis, antwer the following questions. Do not round intermediate creations Round your answers to two decimal places Assume that you were recently hired by Til as a financial analyst and that your boss, the treasurer, has asked you to estimate the company's WACC under the assumption that no new equity will be issued. Your cost of capital should be appropriate for use in evaluating projects that are in the same nisk dass as the assets T now operates. Based on your analysis, answer the following questions. Do not round intermediate calculations Round your answers to two decimal places a What are the current market value weights for debt, preferred stock, and common stock? (Hint: Do your work in dollars, not millions of dollars.) Weight Debt Preferred stock Common stock What is the after-tax cost of debt? c. What is the cost of preferred stock? d. What is the required return on common stock using CAPM? 0 WACC Estimation The owing to gives the balance sheet for Travelers Inc (u), acompany that was formed by merying a number of regional motel chains Travellers Inn (Hillions of dollars) 10 $10 20 Acer 1 receivable 20 Short-term debt Current $50 Current les 5 25 et des 50 Long-term det 30 Preferred stock (50,000 shares) 5 Common Common stock 2,000,000 ware) 10 Retained carings 30 Total como quity 5100 1100 The following facto wo wply to 1. The long-term de contests or 29 12 bonde, nach raving maturity, semennus payments, coupe rate of 941 and feel of 81,000. Currently, the bonds provide restors with a vaid to maturity of a few bonds were sold, they would have an 11AN Vito maturity 2. Tils perpetual preferred stock has a $100 par valu, Suarterly dividendesha of S3, and have to investors of 10 New perpetua preferred stock would have to provide the veld in its and the company would incur a 3,65% notation costoselit the completion whares of common stock outstanding, hare 20 vidend per eres, and earnings per share. The return equity (OE) is expected to be 10 4. The ab 1. The band rate and is estimated to be financial resident recently Delled some pasion fund investment managers who holds a wet mineurs fratum en common would make them willing to buy the common rather than the bonds, given that the bonds Veided 11. The pressed and premium ver The 4 percentage nots. the state tax bracket Assume that you were recently red by Tinancial analyst and that your brothers had you to use the company's WACC nder the motion that one without call here for use in ting jeder in the same on the Tower Based on your analysis, whewer the following question. Do not round deal Whet me the current are wela wrot pred stock, and common oder Do your work in ars, not tons of amlars) Weight Pehred to What out of dete? Weight Debt Preferred stock Common stock b. What is the after-tax cost of debe? What is the cost of preferred stock? What is the required return on common stock using CAPNO e Use the retention growth equation to estimate the expected growth rate. Then use the expected growth rate and the avand growth model to estimate the required return on common stoc What is the required return on common stock using the own-bond-velo-plus-judgmental riak premium approach What is Traveller WACC) Use the required return on stock from parte $ 10 15 0 Travellers Inni (Millions of Dollars) Cash $ 10 Accounts payable Accounts 20 Accruals receivable Inventories 20 Short-term debt Current assets $ 50 Current liabilities $ 25 Net fixed assets 50 Long-term debt 30 Preferred stock (50,000 shares) 5 Common equity Common stock (3,800,000 shares) $ 10 Retained earnings 30 Total common equiry $ 40 Total assets $100 Total abilities and equity $100 The following facts also apply to the 1. The long-term debt consists of 29,412 bonds, each having a 25-year maturity, semiannual payments, #coupon rate of 7.4%, and a face value of $1,000. Currently, these bonds provide investors with a yield to maturity of 11.8%. If new bonds were sold, they would have an 11.8% yield to maturity 2. Til's perpetual preferred stock has a $100 par value, pays a quarterly dividend per share of $3, and has a yield to investors of 10%. New perpetual preferred stock would have to provide the same yield to investors, and the company would incur a 3.65%, flotation cost to sell it 3. The company has 3.8 million shares of common stock outstanding, a price per share=Po - $20, dividend per share - D - $1, and earnings per share - EPS $. The return on equity (ROE) is expected to be 10% 4. The stock has a beta of 1.6. The T-bond rate is 74, and RP is estimated to be 5% 5. Til's financial vice president recently polled some pension fund investment managers who hold Tit's securities regarding what minimum rate of return on this common would make them willing to buy the common rather than I bonds, given that the bonds yielded 11.8%. The responses suggested a risk premium over Tu bonds of 4 percentage points. 6. THI is in the 25% federal-plus-state tax bracket Assume that you were recently hired by Til as a financial analyst and that your boss, the treasurer, has asked you to estimate the company's WACC under the assumption that no new equity will be issued. Your cost of capital should be appropriate for use in evaluating projects that are in the same risk class as the assets TT now operates. Based on your analysis, answer the following questions. De not round intermediate calculations Round your answers to two decimal places. a. What are the current market value weights for debt, preferred stock, and common stock? (Hint: Do your work in dollars, not millions of dollars.) Weight Dett Preferred stock Common stock b. What is the after-tax cost of debt? What is the cost of preferred stock? d. What is the required return on common stock using CAPM? D. What is the after-tax cost of debt? What is the cost of preferred stock? d. What is the required return on common stock using CAPM? e. Use the retention growth equation to estimate the expected growth rate. Then use the expected growth rate and the dividend growth model to estimate the required return on common stock 1. What is the required return on common stock using the own-bond-yield-plus-judgmental-risk-premium approach? What is Travellers' WACC? Use the required returns on stock from parte. $ 10 15 0 Travellers Inna (Millions of dollars) Cash $ 10 Accounts payable Accounts 20 Accruals receivable Inventories 20 Short-term debt Current assets $ 50 Current liabilities Net fixed assets 50 Long-term debt Preferred stock (50,000 shares) Common equity Common stock (3,800,000 shares) Retained earnings Total common equity Total assets $100 Total abilities and equity $ 25 30 5 $ 10 30 $40 $100 The following facts also apply to The following facts also apply to THL: 1. The long-term debt consists of 29,412 bonds, each having a 25-year maturity, semiannual payments, a coupon rate of 7.4%, and a face value of $1,000. Currently, these bonds provide investors with a yield to maturity of 11.8%. If new bonds were sold, they would have an 11.8% yield to maturity 2. TIT's perpetual preferred stock has a $100 par value, pays a quarterly dividend per share of $3, and has a yield to investors of 10%. New perpetual preferred stock would have to provide the same yield to investors, and the company would incur a 3.65% flotation cost to sell it. 2. The company has 3.5 milion shares of common stock outstanding, a price per share=Po - $20, dividend per share Do $1, and earnings per share -EPSO - $5. The return an equity (ROE) expected to be 10%. 4. The stock has a beta of 1.6. The T-bond rate is and RPM is estimated to be 5% 5. Tils financial vice president recently polled some pension fund investment managers who hold Tirs securities regarding what minimum rate of return on Tit's common would make them willing to buy the common rather than Th bonds, given that the bonds yielded 11.8%. The responses suggested a risk premium over Th bonds of 4 percentage points. 6. THis in the 25 federal-plus-state tax bracket. Musume that you were recently hired by Is a financial analyst and that your bow, the tremurer, has asked you to estimate the company'. WACC under the motion that no new equity will be seed. Your cost of capital should be appropriate for use in evaluating projects that are in the same risk ass as the now operates based on your analysis, antwer the following questions. Do not round intermediate creations Round your answers to two decimal places Assume that you were recently hired by Til as a financial analyst and that your boss, the treasurer, has asked you to estimate the company's WACC under the assumption that no new equity will be issued. Your cost of capital should be appropriate for use in evaluating projects that are in the same nisk dass as the assets T now operates. Based on your analysis, answer the following questions. Do not round intermediate calculations Round your answers to two decimal places a What are the current market value weights for debt, preferred stock, and common stock? (Hint: Do your work in dollars, not millions of dollars.) Weight Debt Preferred stock Common stock What is the after-tax cost of debt? c. What is the cost of preferred stock? d. What is the required return on common stock using CAPM