Balance sheet data for Bollins Green Corp (BGC) are given below ASSETS Cash Acc. Rec. Inventories C.A. Net Fixed Assets Total Assets (million of $) 10 20 20 50 50 100 LIABILITIES Acc. Pay. 10 Accruals 10 Notes 5 C.L. 25 L-t. debt 30 Preferred 5 Common 10 R.E. 30 Total 100 Calculate BGC's WACC (assuming that RE and new common equity are used) given the fol- lowing. The firm is unwilling to issue more notes, hence all fundraising has to be done with long-term debt, preferred stock, common stock, and RE. a) Investment bankers estimate that a new, 15-year bond issue can be sold for $795.99. It would have a par of $1,000 and carry an annual coupon of $90. b) BGC new preferred is expected to pay a fixed annual dividend of $11 and have a face value of $100. A floatation cost of 5% is required c) The company's stock has a market price of $20 and the current annual dividend is $1. The rate of growth in ROE has been 24 percent and the firm has a policy of retaining 50% of profits. However, next year the firm expects to accomplish a 30% ROE and maintain it for the foreseeable future. Also, the expected floatation cost of new com- mon is 10% d) The firm is in the 40% tax bracket. e) BGC considers the present capital structure to be the best. It plans on retaining it in the future, too. Balance sheet data for Bollins Green Corp (BGC) are given below ASSETS Cash Acc. Rec. Inventories C.A. Net Fixed Assets Total Assets (million of $) 10 20 20 50 50 100 LIABILITIES Acc. Pay. 10 Accruals 10 Notes 5 C.L. 25 L-t. debt 30 Preferred 5 Common 10 R.E. 30 Total 100 Calculate BGC's WACC (assuming that RE and new common equity are used) given the fol- lowing. The firm is unwilling to issue more notes, hence all fundraising has to be done with long-term debt, preferred stock, common stock, and RE. a) Investment bankers estimate that a new, 15-year bond issue can be sold for $795.99. It would have a par of $1,000 and carry an annual coupon of $90. b) BGC new preferred is expected to pay a fixed annual dividend of $11 and have a face value of $100. A floatation cost of 5% is required c) The company's stock has a market price of $20 and the current annual dividend is $1. The rate of growth in ROE has been 24 percent and the firm has a policy of retaining 50% of profits. However, next year the firm expects to accomplish a 30% ROE and maintain it for the foreseeable future. Also, the expected floatation cost of new com- mon is 10% d) The firm is in the 40% tax bracket. e) BGC considers the present capital structure to be the best. It plans on retaining it in the future, too
