Clearview Systems Ltd. Suppose you have been hired as a financial consultant to Clearview Systems Ltd., a large publicly traded firm that is the market share leader in radon detection systems (RDSS). The company is looking at setting up a manufacturing plant overseas to produce a new line of RDSS. The project will require an investment of $7.0 million dollars and the president of the company wants to be sure she understands her cost of capital before going ahead with the decision Market information for the latest year-end (December 31/2020) is as follows: Debt The company has issued 23,000 bonds, each with a par value of $1,000 and a coupon rate of 8.40 percent (payable semi-annually). The bonds were issued 9 years ago with a 25 year maturity. They are currently selling for $916.00 each. Preferred Stock 108,000 preferred shares have been authorized (with 96,000 issued and outstanding). The closing price of preferred shares was $43.80 per share. Icnmmon Fruit Question WACC New 1512 nn rommon charac hava hoon authorised with 299 000 charac iccued and Common Equity 512,000 common shares have been authorized (with 399,000 shares issued and outstanding). Common shares are selling for $72.00 per share. Clearview Systems Ltd. uses G. M. Wharton as its lead underwriter. Wharton charges 5.00 percent commission on new common stock issues, 5.00 percent on new preferred stock issues, and 5.00 percent on new debt issues. Wharton has included all direct and indirect flotation costs in these rates. The preferred shares were issued six years ago and pay an annual dividend of $1.30 per share. Last year, Clearview Systems Ltd. declared and paid a common share dividend of $1.32 per share. This represented a 6.00 percent growth in the common share dividend (a rate that is expected to continue into the future) and a dividend payout ratio of 45.0 percent (also expected to continue into the future). Clearview Systems Ltd.'s tax rate is 40.0 percent. Preliminary year-end results show net earnings (after interest, taxes and preferred share dividends) for the year ending December 31, 2020 is $3.0 million. 4 5 Clearview Systems Ltd. The following table is presented to help you organize the information from the cases (Note: not all of these variables can be found in the one more to calculate one or more of them.) Bonds Pret Common Dp: DI: Te Ppt PO F: F 7 99 10 Requirements: A. Find market values of outstanding bonds, preferred shares and common shares: 11 12 1. Bonds: 13 14 15 a. What is the market value of each bond? {Enter your answer to two decimal places let $12.34)) b. What is the total market value of bonds at Dec 31, 2020 (Round your answer to whole numbers. For example, 51,234,000 nat51.234 million) 16 17 100) 18 9 2. Preferred shares: What is the total market value of preferred shares at Dec 31, 2020 (Round your answer to whole numbers. For example, 51,234,000 not $1.234 million Question WACC New 3. Common shares: What is the total market value of common shares at Dec 31, 2020 and your answer to whole numbers. For example, 524.000 no 51234) 23 B. What weights are assigned to destpreferred shares and common equity on Dec 31, 2020 (Hound your answer to two decimal places. In 12.34) Do not enter the percenti) Support Debt Preferred Common percent percent percent 28 C.Calculate the after-tax cost of the various components of WACC. Round your answer to two decimal places le 12 34). Do not enter the percent sk) 29 30 31 32 23 4 5 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). Suppo percent Ipercent percent 2. Preferred shares: percent 5 3. Common equity in the form of retained earnings: percent 4. Common equity in the form of new shares: percent D 4. Common equity in the form of new shares: M 12 percent What is the weighted Average cost of capitalit: (Enter your answer to two decimal places, le 12 14). De not enter the perc) 40 41 23 Support 1. the company uses new debt, new preferred shares and just retained earnings? (Hound all lures to two decimal places, le 12.) Do not be the percent len) Debt Prer Common 45 46 percent percent percent percent WACO 48 49 50 51 2. the company uses new debt, new preferred shares and new common shares? (Round all figures to two decimal places. le 12.34) Do not enter the percent sien! Supp Weights Alter tax Cost Weighted Cost 53 54 Debt Pref Common 5 WACC percent Sug 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 $1234 million > Question WACC New Clearview Systems Ltd. Suppose you have been hired as a financial consultant to Clearview Systems Ltd., a large publicly traded firm that is the market share leader in radon detection systems (RDSS). The company is looking at setting up a manufacturing plant overseas to produce a new line of RDSS. The project will require an investment of $7.0 million dollars and the president of the company wants to be sure she understands her cost of capital before going ahead with the decision Market information for the latest year-end (December 31/2020) is as follows: Debt The company has issued 23,000 bonds, each with a par value of $1,000 and a coupon rate of 8.40 percent (payable semi-annually). The bonds were issued 9 years ago with a 25 year maturity. They are currently selling for $916.00 each. Preferred Stock 108,000 preferred shares have been authorized (with 96,000 issued and outstanding). The closing price of preferred shares was $43.80 per share. Icnmmon Fruit Question WACC New 1512 nn rommon charac hava hoon authorised with 299 000 charac iccued and Common Equity 512,000 common shares have been authorized (with 399,000 shares issued and outstanding). Common shares are selling for $72.00 per share. Clearview Systems Ltd. uses G. M. Wharton as its lead underwriter. Wharton charges 5.00 percent commission on new common stock issues, 5.00 percent on new preferred stock issues, and 5.00 percent on new debt issues. Wharton has included all direct and indirect flotation costs in these rates. The preferred shares were issued six years ago and pay an annual dividend of $1.30 per share. Last year, Clearview Systems Ltd. declared and paid a common share dividend of $1.32 per share. This represented a 6.00 percent growth in the common share dividend (a rate that is expected to continue into the future) and a dividend payout ratio of 45.0 percent (also expected to continue into the future). Clearview Systems Ltd.'s tax rate is 40.0 percent. Preliminary year-end results show net earnings (after interest, taxes and preferred share dividends) for the year ending December 31, 2020 is $3.0 million. 4 5 Clearview Systems Ltd. The following table is presented to help you organize the information from the cases (Note: not all of these variables can be found in the one more to calculate one or more of them.) Bonds Pret Common Dp: DI: Te Ppt PO F: F 7 99 10 Requirements: A. Find market values of outstanding bonds, preferred shares and common shares: 11 12 1. Bonds: 13 14 15 a. What is the market value of each bond? {Enter your answer to two decimal places let $12.34)) b. What is the total market value of bonds at Dec 31, 2020 (Round your answer to whole numbers. For example, 51,234,000 nat51.234 million) 16 17 100) 18 9 2. Preferred shares: What is the total market value of preferred shares at Dec 31, 2020 (Round your answer to whole numbers. For example, 51,234,000 not $1.234 million Question WACC New 3. Common shares: What is the total market value of common shares at Dec 31, 2020 and your answer to whole numbers. For example, 524.000 no 51234) 23 B. What weights are assigned to destpreferred shares and common equity on Dec 31, 2020 (Hound your answer to two decimal places. In 12.34) Do not enter the percenti) Support Debt Preferred Common percent percent percent 28 C.Calculate the after-tax cost of the various components of WACC. Round your answer to two decimal places le 12 34). Do not enter the percent sk) 29 30 31 32 23 4 5 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). Suppo percent Ipercent percent 2. Preferred shares: percent 5 3. Common equity in the form of retained earnings: percent 4. Common equity in the form of new shares: percent D 4. Common equity in the form of new shares: M 12 percent What is the weighted Average cost of capitalit: (Enter your answer to two decimal places, le 12 14). De not enter the perc) 40 41 23 Support 1. the company uses new debt, new preferred shares and just retained earnings? (Hound all lures to two decimal places, le 12.) Do not be the percent len) Debt Prer Common 45 46 percent percent percent percent WACO 48 49 50 51 2. the company uses new debt, new preferred shares and new common shares? (Round all figures to two decimal places. le 12.34) Do not enter the percent sien! Supp Weights Alter tax Cost Weighted Cost 53 54 Debt Pref Common 5 WACC percent Sug 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 $1234 million > Question WACC New