Question
A companys Balance Sheet (in millions) Assets Liabilities & Equity Current $30 Bonds ($1000 Par) 75 Net Fixed $70 Common Stock ($1 par) 25 Total
A companys Balance Sheet (in millions)
Assets Liabilities & Equity
Current $30 Bonds ($1000 Par) 75
Net Fixed $70 Common Stock ($1 par) 25
Total $100 Total $100
The company's bonds have a coupon rate of 9% with semi-annual payments, and currently sell for $1085. The maturity of those bonds is 12 years.
The companys applicable tax rate is 40%.
The common stock dividend has grown at a steady rate from $0.72 in December 1990 to $1.25 in December 2000. The same growth rate is expected to continue for long time in the future. The floatation cost for new common stocks is 10%.
The market value of the common stock is $12.
Next year is 2001.
a) What is the market value of debts weight?
b) What is the market value of equitys weight?
c) What is the cost of issuing new common stock?
d) What is the WACC of the company using the market weights of capital structure?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started