A. 1. Bonds: a. what is the market value of each bond? b. what is the total market value of bonds at December 31, 2020?
A.
1. Bonds:
a. what is the market value of each bond?
b. what is the total market value of bonds at December 31, 2020?
2. preferred shares: what is the total market value of preferred shares at December 31, 2020?
3. Common shares: What is the total market value of common shares at December 31, 2020?
B. what weights are assigned to debt, preferred shares and common equity on December 31, 2020?
c. Calculate the after-tax cost of the various components of WACC:
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 form of new shares:
D. What is the weighted average cost of capital if :
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?
E. how much of the new capital projects can be funded without using new shareholders?
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(If information appears to be missing, change the row height to see it.) Based in Winnipeg, Manitoba, Defence Electronics Inc. (DEI) was founded to provide security systems, facilities controls and related services. DEI 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. 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 yalue of preferred shares at Dec 31, 2020 (Round your answer to whole numbers. For efample, $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 (Round all your answers to two decimal places. If you want to enter the number 12.34%, for example, enter 12.34 (not 0.1234 ) and do not enter the percent sign.) percent percent percent Over the last five years the annual dividends on the firm's common stock have grown at 3.00 percent per year and this growth is expected to continue indefinitely. A common share dividend of $1.990 per share was recently paid. Common shares trade at $74.000 per share. The company has authorized 267,000 common shares, with 240,000 common shares issued and outstanding. The company has issued 124,000 of the 161,000 prefered shares authorized. The annual preferred share dividend is $2.240 per share. The latest preferred share price is $50.400 per share. DEI has an outstanding bond issue, payable semi-annually, that originally had a 20 year maturity. The initial bond offering was sold 10 years ago, at par and raised $24.20 million dollars. (To be specific 24,200 bonds were sold at $1,000 each.) The yield to maturity, when they were issued, was 6.20 percent. Currently, the nominal yield to maturity on bonds with a similar risk is at 5.34 percent. The company will use its current capital structure to set target weights for debt, preferred shares and common shares. Flotation costs are 5.00 percent for preferred shares, 6.00 percent for common shares and 4.00 percent for debt. The company's tax rate is 40.00 percent. After-tax earnings for the year will be $5.00 million and the company has a payout ratio of 30.00 percent. Use this information to answer the questions on the next spreadsheet tab. 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 (Round all your answers to two decimal places. If you want to enter the number 12.34\%, for example, enter 12.34 (not 0.1234 ) and do not enter the percent sign.) 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: percent 3. Common equity in the form of retained earnings: 4. Common equity in the form of new shares: (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 earninge? 2, the company uses new debt, new preferred shares and new common shares? 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.) (If information appears to be missing, change the row height to see it.) Based in Winnipeg, Manitoba, Defence Electronics Inc. (DEI) was founded to provide security systems, facilities controls and related services. DEI 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. 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 yalue of preferred shares at Dec 31, 2020 (Round your answer to whole numbers. For efample, $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 (Round all your answers to two decimal places. If you want to enter the number 12.34%, for example, enter 12.34 (not 0.1234 ) and do not enter the percent sign.) percent percent percent Over the last five years the annual dividends on the firm's common stock have grown at 3.00 percent per year and this growth is expected to continue indefinitely. A common share dividend of $1.990 per share was recently paid. Common shares trade at $74.000 per share. The company has authorized 267,000 common shares, with 240,000 common shares issued and outstanding. The company has issued 124,000 of the 161,000 prefered shares authorized. The annual preferred share dividend is $2.240 per share. The latest preferred share price is $50.400 per share. DEI has an outstanding bond issue, payable semi-annually, that originally had a 20 year maturity. The initial bond offering was sold 10 years ago, at par and raised $24.20 million dollars. (To be specific 24,200 bonds were sold at $1,000 each.) The yield to maturity, when they were issued, was 6.20 percent. Currently, the nominal yield to maturity on bonds with a similar risk is at 5.34 percent. The company will use its current capital structure to set target weights for debt, preferred shares and common shares. Flotation costs are 5.00 percent for preferred shares, 6.00 percent for common shares and 4.00 percent for debt. The company's tax rate is 40.00 percent. After-tax earnings for the year will be $5.00 million and the company has a payout ratio of 30.00 percent. Use this information to answer the questions on the next spreadsheet tab. 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 (Round all your answers to two decimal places. If you want to enter the number 12.34\%, for example, enter 12.34 (not 0.1234 ) and do not enter the percent sign.) 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: percent 3. Common equity in the form of retained earnings: 4. Common equity in the form of new shares: (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 earninge? 2, the company uses new debt, new preferred shares and new common shares? 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.)Step by Step Solution
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