1 Milton Fabricators LLP. 2 (If information appears to be missing, change the row height to see it.) 3 4 5 6 7 Based in Winnipeg, Manitoba, Milton Fabricators LLP. (MFL) was founded to provide security systems, facilities controls and related services. MFL 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. 8 9 10 11 12 13 14 15 16 56 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 $6.0 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. D 17 18 19 20 21 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 $2.420 per share was recently paid. Common shares trade at $47.000 per share. The company has authorized 450,000 common shares, with 338,000 common shares issued and outstanding. 2222 The many has issued 157.000 of the 100 non fared charas authorised. The annual Question Sheet Answer sheet Supporting calculations New.... 10 11 #2 12 13 14 15 15 16 17 18 19 20 21 22 23 24 25 B 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 $6.0 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 $2.420 per share was recently paid. Common shares trade at $47.000 per share. The company has authorized 450,000 common shares, with 338,000 common shares issued and outstanding. 26 27 28 29 30 31 32 22 32 The company has issued 157,000 of the 180,000 preferred shares authorized. The annual preferred share dividend is $1.090 per share. The latest preferred share price is $23.100 per share. MFL has an outstanding bond issue, payable semi-annually, that originally had a 25 year maturity. The initial bond offering was sold 10 years ago, at par and raised $11.90 million dollars. (To be specific 11,900 bonds were sold at $1,000 each.) The yield to maturity, when they were issued, was 7.00 percent. Currently, the nominal yield to maturity on bonds with a similar risk is at 7.85 percent. D ages should be Pounded to two decimal places. If you want to enter the number 12.34%, for example > Bond prices should be to two decimal places (e.g. $12.34) > 'Per share' figures should be rounded to three decimal places (e.g. $1.234 per share) > Total dollar figures should be rounded to zero decimal places (e.g. $1,234) The following tables are presented to help you organize the information from the case, for use in formulas: (there are no marks associated with the information in this table) Bonds Pref Common Y: O percent Dp: $0 01: $0 Tc: O percent Pp: $0 PO: $0 O percent F: O percent g: O percent F: O percent 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. (e.g. $12.34)) b. What is the total market value of bonds at Dec 31, 2020 (Round your answer to whole numbers. For example, $1,234,000 not $1.234 million.) 2. Preferred shares: What is the total market value of preferred shares at Dec 31, 2020 (Round your answer to whole numbers. For example, $1,234,000 not $1.234 million.) 3. Common shares: What is the total market value of common shares at Dec 31, 2020 (Round your answer to whole numbers. For example, $1,234,000 not $1.234 million.) B. What weights are assigned to debt, preferred shares and common equity on Dec 31, 2020 C. Calculate the after-tax cost of the various components of WACC: (Round all your answers to two decimal places. If you want to enter the number 12.34%, 1. Bonds a. What is the nominal yield-to-maturity? b. What is the effective yield-to-maturity? c. Calculate the after-tax cost of new debt (using the effective yield-to-maturity). 2. Preferred shares: 3. Common equity in the form of retained earnings: 4. Common equity in the form of new shares: D. What is the Weighted Average Cost of Capital if: (Round all your answers to two decimal places. If you want to enter the number 12.34%, 1. the company uses new debt, new preferred shares and just retained earnings? 2. the company uses new debt, new preferred shares and new common shares? L C C Weights After-tax Cost Debt Pref 0 0 0 Common 0 WACC After-tax Weights Cost Debt 0 O Pref Common: 0 2. the company uses new debt, new preferred shares and new common shares? After-tax Weights Cost Debt 0 Pref Common 0 0 WA E. How much of the new capital projects can be funded without using new shareholders? (Enter your answer in whole numbers. For example, $1,234,000 not $1.234 million.) 105