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Hi, I need to solve this in excel but I am unsure how to proceed. If you could use values instead of cell references it
Hi, I need to solve this in excel but I am unsure how to proceed. If you could use values instead of cell references it would be much appreciated so I can learn the process and explanation.
Question 6: | ||||
A company has the following sources of capital, as shown on it's balance sheet: | ||||
Book Value ($s) | ||||
Long-term Debt (Bonds) | 2 000 000 | |||
Preferred Shares | 1 000 000 | |||
Common Stock | 3 000 000 | |||
Retained Earnings | 1 500 000 | |||
The following information is also provided: | ||||
- The bonds have a face value of 100 and a coupon rate of 10% per year paid annually. The bonds mature in 6 years. A new issue with the same maturity would have a floatation cost of 4% of the $112 market value (hint: use this as the market value of debt). The firm's average tax rate is 21%, and it's marginal tax rate is 24% | ||||
- The preferred stocks pay a 9% dividend on their 200 par value. If a new issue is offered, floatation costs will be 11% of the current price of $220 (hint: use this as the market value of preferred shares). | ||||
- The par value of the common stock is $60, it paid a dividend of $5.5 last year, and the dividends have grown at a rate of 7 percent per year. This growth rate is expected to continue into the foreseeable future. The price of this stock is now $97.50 (hint: use this as the market value of common stocks), but 5 percent flotation costs are anticipated on new issues. | ||||
a. What does the company's capital structure look like? | ||||
b. What is the companys WACC? | ||||
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