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Can someone help me! Suppose firm XYZ has the following balance sheet figures: Book value Bonds: 8% coupon rate, annual coupons, 10 years to maturity
Can someone help me!
Suppose firm XYZ has the following balance sheet figures:
| Book value |
Bonds: 8% coupon rate, annual coupons, 10 years to maturity | $1.0 million |
Preferred shares: 10% dividend rate | $1.0 million |
Common equity: common shares 100,000 shares issued at $15/share | $1.5 million |
Retained earnings | $0.5 million |
Total | $4.0 million |
Assume the marginal tax rate is 40%. The market interest rate on similar risk 10-year bonds is 6%. Similar risk preferred shares are providing yields of 8%, and common share price is currently $25.
- Find the market value proportions of bonds, preferred shares, and common equity in total asset value.
- Assume that the firm paid a dividend per share last year of $1, which is expected to grow at 5% per year indefinitely. What is the cost of common equity? What is the firms WACC?
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