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I need help with this question. 1. The following is partial information taken from John's Restaurant Ltd.'s most recent balance sheet: $ 58,000,000 $21 Long
I need help with this question.
1. The following is partial information taken from John's Restaurant Ltd.'s most recent balance sheet: $ 58,000,000 $21 Long term bonds (par value) Preferred stock - see the notes Common equity Common stock Retained earnings $18,000,000 60,000,000 78,000,000 $21 The company's bonds trade in the market at a yield-to-maturity is 8.0%. They have a coupon rate of 9% and were originally issued ten years ago as thirty year bonds. New bonds will be issued at par, the underwriting expenses are expected to be 2.0% The preferred stock in the market has a stated fixed dividend rate of 8.2% and a "norma/regular" par value. Their current market value is such that they trade at a $4.0 premium per share. New preferred stock is to be issued to the public at par value and will consider the floatation costs estimated at 3.00%. The company has 10 million common shares outstanding with a market value of $11 per share. They expect to pay a dividend of $0.85 this year and the dividend growth rate is expected to be 4%. The firm's common stock has a beta thirty percent more than the overall stock market. The current yield on government T-bills is 3.0% and the yield on long-term government bonds is 6%. The return on the average market portfolio is expected to be 10%. John's Ltd. uses an average of three methods to estimate its cost of capital for common equity. Assume the company's common equity is from internal sources. John's Restaurant Ltd.'s corporate tax rate is 35%. Assume no underwriting expenses for common equity. There are 800,000 preferred shares. Required: a. Compute John's Restaurant Ltd.'s s cost of equity, cost of preferred and cost of debt. Show all calculations. b. Compute John's Restaurant Ltd.'s weighting of equity, preferred and debt for the purposes of calculating its WACC. Show all calculations. c. Compute John's Restaurant Ltd.'s weighted average cost of capital. Show all calculations. Separately, if the company is considering raising $20,000,000 in bonds net - what is the gross amount of debt that they need to raise, pre underwriting expenses? 1. The following is partial information taken from John's Restaurant Ltd.'s most recent balance sheet: $ 58,000,000 $21 Long term bonds (par value) Preferred stock - see the notes Common equity Common stock Retained earnings $18,000,000 60,000,000 78,000,000 $21 The company's bonds trade in the market at a yield-to-maturity is 8.0%. They have a coupon rate of 9% and were originally issued ten years ago as thirty year bonds. New bonds will be issued at par, the underwriting expenses are expected to be 2.0% The preferred stock in the market has a stated fixed dividend rate of 8.2% and a "norma/regular" par value. Their current market value is such that they trade at a $4.0 premium per share. New preferred stock is to be issued to the public at par value and will consider the floatation costs estimated at 3.00%. The company has 10 million common shares outstanding with a market value of $11 per share. They expect to pay a dividend of $0.85 this year and the dividend growth rate is expected to be 4%. The firm's common stock has a beta thirty percent more than the overall stock market. The current yield on government T-bills is 3.0% and the yield on long-term government bonds is 6%. The return on the average market portfolio is expected to be 10%. John's Ltd. uses an average of three methods to estimate its cost of capital for common equity. Assume the company's common equity is from internal sources. John's Restaurant Ltd.'s corporate tax rate is 35%. Assume no underwriting expenses for common equity. There are 800,000 preferred shares. Required: a. Compute John's Restaurant Ltd.'s s cost of equity, cost of preferred and cost of debt. Show all calculations. b. Compute John's Restaurant Ltd.'s weighting of equity, preferred and debt for the purposes of calculating its WACC. Show all calculations. c. Compute John's Restaurant Ltd.'s weighted average cost of capital. Show all calculations. Separately, if the company is considering raising $20,000,000 in bonds net - what is the gross amount of debt that they need to raise, pre underwriting expensesStep by Step Solution
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