Question
Cook Wares has a target debt ratio (debt/value) of 60%. The 10-year bonds have a coupon rate of 8.3% (paid annually) and currently trade for
Cook Wares has a target debt ratio (debt/value) of 60%. The 10-year bonds have a coupon rate of 8.3% (paid annually) and currently trade for $1125 per bond. The tax rate is 30%. They have the following information on their stock (You will need to fill in the blanks):
Current EPS | |
Current Dividend | |
Return on Equity | |
Current Price | |
Payout Rate = Div/EPS |
|
Growth = Retention x ROE |
|
a) Calculate the weighted average cost of capital.
b) The firm has a 3-year planning period. The firm expects cash flows of $6M next year, and the cash flows will initially grow at the growth rate. After year 3, they estimate that the cash flows will start to grow at 2% indefinitely. Find the value of the operations.
c) The firm has $8M in cash, $2M in debt and 5M shares outstanding. Find the share price.
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