1 Launton Com. for the lesing change the weight to It) 2 Based in Winnipeg, Manitoba, Taunton Corp (TC) was founded to provide security systems, facilities controls and related services. TC established a solid reputation for quality and the business grew thanks to strong relationships with large, long-term customers in Canada and the United States The Research and Innovation Group (RIG) is the development side of the company. They are considering a new contract that will strain resources for not only RIG, but the entire company. With an upfront cost of $10.0 million, managers understand that the cost of capital will be a key part of maintaining and improving Clearview's competitive edge. You have been asked to calculate the company's weighted average cost of capital (WACC), based on the following information, Over the last five years the annual dividends on the firm's common stock have grown at 4.00 percent per year and this growth is expected to continue indefinitely. A common share dividend of S1.130 per share was recently paid. Common shares trade at $82.000 per share. The company has authorized 391,000 common shares, with 325,000 common shares issued and outstanding. The company has issued 131,000 of the 150,000 preferred shares authorized. The annual preferred share dividend is $2.500 per share. The latest preferred share price is $57.300 per share. TC has an outstanding bond issue, payable semi-annually, that originally had a 30 year maturity. The initial bond offering was sold 7 years ago, at par and raised $19.90 million dollars. (To be specific 19,900 bonds were sold at 51,000 each.) The yield to maturity, when they were issued, was 5.40 percent. Currently, the nominal yield to maturity on bonds with a similar risk is at 5.29 percent. The company will use its current capital structure to set target weights for debt, preferred shares and common shares. Flotation costs are 3.00 percent for preferred shares, 4.00 percent for common shares and 5.00 percent for debt. The company's tax rate is 35.00 percent. After-tax earnings for the year will be $2.00 million and the company has a payout ratio of 45.00 percent. Use this information to answer the questions on the next spreadsheet tab. Taunton Corp. Einless directed other Percoges show here to do you the ber 12. 10. 1200) o de mot enter the percent Beished be the heat leo. 512 The there should the ended three decades les pershor Toate shoulder to rece. SUM The following table is presented to help you organize the information from the case: (there are no marks associated with the information in this table) Boncts Pref Common o percent Dp: D1 SO Tc o percent Pp: SO PO: SO F O percent F: Opercent ELO percent F: O percent $0 Requirements: A. Find market values of outstanding bonds, preferred shares and common shares: 1. Bonds a. What is the market value of each bond? Enter your answer to two decimal places de $12.00 b. What is the total market value of bonds at Dec 31, 2020 Round your answer to whole number. For example: 51722.000 na 5123 milion SO 2. Preferred shares: What is the total market value of preferred shares at Dec 31, 2020 (Round your one to whole number for me, St.234.000 nor 1.334 million 3. Common shares: What is the total market value of common shares at Dec 31, 2020 Round your answer to wholombers. For example, S1 216.00 $1234 AX AI AM AN AB AC AD AE AS ACE AH AI B. What weights are assigned to debt preferred shares and common purity on Dec 31, 2020 for decimal place you to enter the umber 12.0 forsenter 12. do not enter the po Debt Preferred Common Opercent Opercent Opercent 31 2 33 M 35 36 37 38 19 10 41 Calculate the after-tax cost of the various components of WACC and all your news town decimal or you want to the mer 12 24% 1. Bonds a What is the nominal yield-to-maturity? . What is the effective yield to maturity? c. Calculate the after-tax cost of new debt using the effectivo yield to maturity), Opercent Opercent Opercent 2. Preferred shares: O percent O percent 42 43 3. Common equity in the form of retained earnings 4. Common equity in the form of new shares Opercent 45 46 D. What is the weighted Average Cast of Capital if: (Round all your ones to be decimal place you want to enter the number 12.94 1. the company uses new debit, new preferred shares and just retained earnings? Debt Pref Common percent percent percent percent WACC 2. the company uses new debt, new preferred shares and new common shares? 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 Weirdits Cast : Debt Pret Common WACC percent E. How much of the new capital projects can be funded without using new shareholders? Et our meer in whole numbers. For comple, 51.234,000 not 51.234 million) 65 1 Launton Com. for the lesing change the weight to It) 2 Based in Winnipeg, Manitoba, Taunton Corp (TC) was founded to provide security systems, facilities controls and related services. TC established a solid reputation for quality and the business grew thanks to strong relationships with large, long-term customers in Canada and the United States The Research and Innovation Group (RIG) is the development side of the company. They are considering a new contract that will strain resources for not only RIG, but the entire company. With an upfront cost of $10.0 million, managers understand that the cost of capital will be a key part of maintaining and improving Clearview's competitive edge. You have been asked to calculate the company's weighted average cost of capital (WACC), based on the following information, Over the last five years the annual dividends on the firm's common stock have grown at 4.00 percent per year and this growth is expected to continue indefinitely. A common share dividend of S1.130 per share was recently paid. Common shares trade at $82.000 per share. The company has authorized 391,000 common shares, with 325,000 common shares issued and outstanding. The company has issued 131,000 of the 150,000 preferred shares authorized. The annual preferred share dividend is $2.500 per share. The latest preferred share price is $57.300 per share. TC has an outstanding bond issue, payable semi-annually, that originally had a 30 year maturity. The initial bond offering was sold 7 years ago, at par and raised $19.90 million dollars. (To be specific 19,900 bonds were sold at 51,000 each.) The yield to maturity, when they were issued, was 5.40 percent. Currently, the nominal yield to maturity on bonds with a similar risk is at 5.29 percent. The company will use its current capital structure to set target weights for debt, preferred shares and common shares. Flotation costs are 3.00 percent for preferred shares, 4.00 percent for common shares and 5.00 percent for debt. The company's tax rate is 35.00 percent. After-tax earnings for the year will be $2.00 million and the company has a payout ratio of 45.00 percent. Use this information to answer the questions on the next spreadsheet tab. Taunton Corp. Einless directed other Percoges show here to do you the ber 12. 10. 1200) o de mot enter the percent Beished be the heat leo. 512 The there should the ended three decades les pershor Toate shoulder to rece. SUM The following table is presented to help you organize the information from the case: (there are no marks associated with the information in this table) Boncts Pref Common o percent Dp: D1 SO Tc o percent Pp: SO PO: SO F O percent F: Opercent ELO percent F: O percent $0 Requirements: A. Find market values of outstanding bonds, preferred shares and common shares: 1. Bonds a. What is the market value of each bond? Enter your answer to two decimal places de $12.00 b. What is the total market value of bonds at Dec 31, 2020 Round your answer to whole number. For example: 51722.000 na 5123 milion SO 2. Preferred shares: What is the total market value of preferred shares at Dec 31, 2020 (Round your one to whole number for me, St.234.000 nor 1.334 million 3. Common shares: What is the total market value of common shares at Dec 31, 2020 Round your answer to wholombers. For example, S1 216.00 $1234 AX AI AM AN AB AC AD AE AS ACE AH AI B. What weights are assigned to debt preferred shares and common purity on Dec 31, 2020 for decimal place you to enter the umber 12.0 forsenter 12. do not enter the po Debt Preferred Common Opercent Opercent Opercent 31 2 33 M 35 36 37 38 19 10 41 Calculate the after-tax cost of the various components of WACC and all your news town decimal or you want to the mer 12 24% 1. Bonds a What is the nominal yield-to-maturity? . What is the effective yield to maturity? c. Calculate the after-tax cost of new debt using the effectivo yield to maturity), Opercent Opercent Opercent 2. Preferred shares: O percent O percent 42 43 3. Common equity in the form of retained earnings 4. Common equity in the form of new shares Opercent 45 46 D. What is the weighted Average Cast of Capital if: (Round all your ones to be decimal place you want to enter the number 12.94 1. the company uses new debit, new preferred shares and just retained earnings? Debt Pref Common percent percent percent percent WACC 2. the company uses new debt, new preferred shares and new common shares? 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 Weirdits Cast : Debt Pret Common WACC percent E. How much of the new capital projects can be funded without using new shareholders? Et our meer in whole numbers. For comple, 51.234,000 not 51.234 million) 65