Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Maggies Acting Company has 7,000,000 shares of stock outstanding at a price of $60/share and a Beta of 1. They have two bond issues: 1)

  1. Maggies Acting Company has 7,000,000 shares of stock outstanding at a price of $60/share and a Beta of 1. They have two bond issues: 1) $25,000,000 of Face Value maturing in 10 years. The price of one bond is 97, or 97% of Par. 2) $40,000,000 of Face Value maturing in 5 years. The price of one bond is 102, or 102% of par.

The Risk-free rate is 3% and the Expected Return on the Market is 10%.

Companies with a similar risk profile to Maggies Acting Company have a yield spread of 1.0% for 5-year bonds and 1.5% for 10-year bonds.

  1. Cost of debt 1?

  1. Cost of debt 2?

  1. Weighted average cost of debt which is Rd?
    1. (Wd1 * Rd1) + (Wd2 * Rd2)

  1. What is the cost of equity (Re)?

  1. What is the market value of the equity (MVe)?

  1. What is the value of the firm (MVd + MVe)

  1. What is the weight of debt (Wd)?

  1. What is the weight of equity (We)?

  1. What is the companys WACC?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Focus On Personal Finance An Active Approach To Help You Develop Successful Financial Skills

Authors: Jack Kapoor, Les Dlabay, Robert Hughes

4th Edition

0078034787, 978-0078034787

More Books

Students also viewed these Finance questions