Answered step by step
Verified Expert Solution
Question
1 Approved Answer
May you help me? Question 2 YK Products Ltd intends to make use of its weighted average of cost of capital (WACC) to evaluate a
May you help me?
Question 2 YK Products Ltd intends to make use of its weighted average of cost of capital (WACC) to evaluate a potential project for further expansion. Long term liabilities and shareholders' equity are recorded as their book values on the company's balance sheet. Their book values are calculated by the outstanding number of bonds or stocks times their par value. You are provided with the following information extracted from the balance sheet of the company for the current year. Long term liabilities: Zero coupon bonds payable due in 13 years, $1,000 par value 3,600,000 Shareholders' equity: $ 8% preferred stocks, S10 par value 300,000 Common stocks, $5 par value 1,000,000 Other information: The current market prices are $7.35 for common shares, $13.45 for preference shares, and $460.95 for zero coupon bonds respectively Zero coupon bonds discount semi-annually. Dividends for common stockholders are estimated to grow by 5% annually for the foreseeable future indefinitely and $0.55 dividend per share has just been paid. The company is subject to the corporation tax rate of 30% in the current year. [Note: take full decimal places in the middle steps and round your FINAL answer to 2 decimal places (i.e. 1.23%)] (a) Calculate the cost of equity. (in %) (2 marks) (b) Calculate the cost of preferred stock. (in %) (2 marks) (c) Calculate the after-tax cost of debt. (in %) (3 marks) (d) Calculate the company's outstanding number of zero coupon bonds, preferred stocks and common stocks. (3 marks) (e) Calculate the company's WACC. (in %)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