Question
PLEASE ANSWER ASAP PLEASE I HAVE LESS TIME A firm has issued $15 million bonds that pay a 4.5% annual coupon and the yield to
PLEASE ANSWER ASAP PLEASE I HAVE LESS TIME
A firm has issued $15 million bonds that pay a 4.5% annual coupon and the yield to maturity is 5%. The market price of the bonds is $12.5 million.
There are 3 million preference shares outstanding, which have a book value of $2.5 per share and which are trading for $3.00$ per share. The preference shares pay an annual dividend of $0.42 per share.
There are 5 million ordinary shares outstanding, which have a book value of $1.95 per share and which are currently priced at $2.40 per share. The firm's ordinary shares have a beta of 0.80. The yield on longterm government bonds is 2.5% p.a. The expected market return is 8% p.a.
The corporate tax rate is 35%.
a) What is the market value of preference shares?(2 marks)
b) What is the cost of preference shares?(2 marks)
c) What is the market value of ordinary shares?(2 marks)
d) What is the cost of ordinary shares?(2 marks)
e) What is the firm's weighted average cost of capital (WACC)?(4 marks)
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