Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

please help me this questions. thank you! Defence Electronics Inc December 31, 2021. (If information appears to be missing, change the row height to see

image text in transcribed

image text in transcribed

please help me this questions. thank you!

image text in transcribed

image text in transcribed

Defence Electronics Inc December 31, 2021. (If information appears to be missing, change the row height to see it.) Based in Winnipeg, Manitoba, Defence Electronics Inc. (DEI) was founded to provide security systems, facilities controls and related services DEI established a solid reputation for quality and the business grew thanks to strong relationships with large, long-term customers in Canada and the United States. The Research and Innovation Group (RIG) is the development side of the company. They are considering a new contract that will strain resources for not only RIG, but the entire company. With an upfront cost of $9.0 million, managers understand that the cost of capital will be a key part of maintaining and improving Clearview's competitive edge. You have been asked to calculate the company's weighted average cost of capital (WACC), based on the following information. Over the last five years the annual dividends on the firm's common stock have grown at 3.00 percent per year and this growth is expected to continue indefinitely. A common share dividend of $1.780 per share was recently paid. Common shares trade at $66.000 per share. The company has authorized 327,000 common shares, with 301,000 common shares issued and outstanding. The company has issued 124,000 of the 142,000 preferred shares authorized. The annual preferred share dividend is $1.820 per share. The latest preferred share price is $31.000 per share. DEI has an outstanding bond issue, payable semi-annually, that originally had a 20 year maturity. The initial bond offering was sold 9 years ago, at par and raised $21.40 million dollars. (To be specific 21,400 bonds were sold at $1,000 each.) The yield to maturity, when they were issued, was 5.30 percent. Currently, the nominal yield to maturity on bonds with a similar risk is at 6.24 percent. 9 The company will use its current capital structure to set target weights for debt, preferred shares and common shares. Flotation costs are 5.00 percent for preferred shares, 3.00 percent for common shares and 5.00 percent for debt. The company's tax rate is 35.00 percent. After-tax earnings for the year will be $3.00 million and the company has a payout ratio of 35.00 percent. Defence Electronics Inc December 31, 2021. (If information appears to be missing, change the row height to see it.) Requirements: A. Find market values of outstanding bonds, preferred shares and common shares: 1. Bonds: a. What is the market value of each bond? (Enter your answer to two decimal places. (e g. $12.34)) b. What is the total market value of bonds at Dec 31, 2021 (Round your answer to whole numbers. For example, $1,234,000 not $1.234 million.) 2. Preferred shares: What is the total market value of preferred shares at Dec 31, 2021 (Round your answer to whole numbers. For example, $1,234,000 not $1.234 million.) 3. Common shares: What is the total market value of common shares at Dec 31, 2021 (Round your answer to whole numbers. For example, $1,234,000 not $1.234 million.) B. What weights are assigned to debt, preferred shares and common equity on Dec 31, 2021 (Round all your answers to two decimal places. If you want to enter the number 12.34%, for example, enter 12.34 (not 0.1234) and do not enter the percent sign.) C. Calculate the after-tax cost of the various components of WACC (Round all your answers to two decimal places. If you want to enter the number 12.34%, for example, enter 12.34 (not 0.1234) and do not enter the percent sign.) 1. Bonds a. What is the nominal yield-to-maturity? b. What is the effective yield-to-maturity? c. Calculate the after-tax cost of new debt (using the effective yield-to-maturity). 2. Preferred shares: 3. Common equity in the form of retained earnings: 4. Common equity in the form of new shares: D. What is the Weighted Average Cost of Capital if: 1. The company uses new debt, new preferred shares and just retained earnings? 2. The company uses new debt, new preferred shares and new common shares? E. How much of the new capital projects can be funded without using new shareholders? Unless directed otherwise; Percentages should be rounded to no decimal places. If you want to enter the number 12.34% for example, enter 1234 (not 0.1234) and do not enter the percent sign. Bond prices should be to two decimal places (eg. $1234) "Per share figures should be rounded to three decimal places (e.g. $1 234 per share) r Total dollar figures should be rounded to zero decimal places (e.g. $1,234) Read the above case carefully and gather the key facts in the space provided below. You will need these facts to solve each of the required questions so make sure you pay attention to the details of the case Key Facts Bonds Cal Maturity Period since Issuance of the Bonds Time to Maturity Key Facts Common Shares Dividend Growth Rate (g) Current Dividends (DO) 20 Key Facts Preferred Shares Preferred Share Dividends (D) Preferred Share Price (Pp) Authorized Preferred Shares Years Years ago 9 Years Common Share Price Total Value Raised $21,000,000 Issued and Outstanding Preferred Shares Authorized Common Shares Face Value (FV) Preferred Shares Floatation Cost Issued and Outstanding Common Shares Rate at Time of Issue (Coupon Rate %) 5.30% Common Share Floatation Cost Current Yield to Maturity (Current Rate %) Other Key Facts Number of Payments Per Year Corporate Tax Rate Debt Floatation Cost (%) After Tax Eraning for the Year Payout Ratio Project Cost nd market values of outstanding bonds, preferred shares and common shares: a. What is the market value of each bond? (Enter your answer to two decimal places. (e.g. S1234)) b. What is the total market value of bonds at Dec 31, 2021 (Round your answer to whole numbers. For example, $1,234,000 not $1.234 million.) Solutions Outpat for Questions la Market Value of each bond Present Value of Coupon Payments Present value of Principal at maturity Solutions Output for Questions lb Market Value of Bonds Present Value of Coupon Payments Present value of Principal at maturity Current Value of the Bonds Total Market Value of the Bonds A. Find market values of outstanding bonds, preferred shares and common shares: a. What is the market value of each bond? (Enter your answer to two decimal places. (e.g. $12.34)) b. What is the total market value of bonds at Dec 31, 2021 (Round your answer to whole numbers. For example, $1,234,000 not $1,234 million.) Solutions Output for Questions la Market Value of each bond Present Value of Coupon Payments Present value of Principal at maturity Current Value of the Bonds Solutions Output for Questions 1b Market Value of Bonds Present Value of Coupon Payments Present value of Principal at maturity Total Market Value of the Bonds. 2. Preferred shares: What is the total market value of preferred shares at Dec 31, 2021 (Round your answer to whole numbers. For example, $1,234,000 not $1.234 million.) 3. Common shares: What is the total market value of common shares at Dec 31, 2021 (Round your answer to whole numbers. For example, $1,234,000 not $1.234 million.) Solutions Output for Questions 2 Total Market Value of Preferred Shares Solutions Output for Questions 3 Total Market Value of Common Shares Total Market Value of Preferred Share Total Market Value of Common Shares B. What weights are assigned to debt, preferred shares and common equity on Dec 31, 2021 Solutions Output for Questions B Weights of Debts, Preferred Shares and Common Shares Components Market Value Weights (Wd, Wp, We) Debts Preferred Shares Common Shares Total Capital Defence Electronics Inc December 31, 2021. (If information appears to be missing, change the row height to see it.) Based in Winnipeg, Manitoba, Defence Electronics Inc. (DEI) was founded to provide security systems, facilities controls and related services DEI established a solid reputation for quality and the business grew thanks to strong relationships with large, long-term customers in Canada and the United States. The Research and Innovation Group (RIG) is the development side of the company. They are considering a new contract that will strain resources for not only RIG, but the entire company. With an upfront cost of $9.0 million, managers understand that the cost of capital will be a key part of maintaining and improving Clearview's competitive edge. You have been asked to calculate the company's weighted average cost of capital (WACC), based on the following information. Over the last five years the annual dividends on the firm's common stock have grown at 3.00 percent per year and this growth is expected to continue indefinitely. A common share dividend of $1.780 per share was recently paid. Common shares trade at $66.000 per share. The company has authorized 327,000 common shares, with 301,000 common shares issued and outstanding. The company has issued 124,000 of the 142,000 preferred shares authorized. The annual preferred share dividend is $1.820 per share. The latest preferred share price is $31.000 per share. DEI has an outstanding bond issue, payable semi-annually, that originally had a 20 year maturity. The initial bond offering was sold 9 years ago, at par and raised $21.40 million dollars. (To be specific 21,400 bonds were sold at $1,000 each.) The yield to maturity, when they were issued, was 5.30 percent. Currently, the nominal yield to maturity on bonds with a similar risk is at 6.24 percent. 9 The company will use its current capital structure to set target weights for debt, preferred shares and common shares. Flotation costs are 5.00 percent for preferred shares, 3.00 percent for common shares and 5.00 percent for debt. The company's tax rate is 35.00 percent. After-tax earnings for the year will be $3.00 million and the company has a payout ratio of 35.00 percent. Defence Electronics Inc December 31, 2021. (If information appears to be missing, change the row height to see it.) Requirements: A. Find market values of outstanding bonds, preferred shares and common shares: 1. Bonds: a. What is the market value of each bond? (Enter your answer to two decimal places. (e g. $12.34)) b. What is the total market value of bonds at Dec 31, 2021 (Round your answer to whole numbers. For example, $1,234,000 not $1.234 million.) 2. Preferred shares: What is the total market value of preferred shares at Dec 31, 2021 (Round your answer to whole numbers. For example, $1,234,000 not $1.234 million.) 3. Common shares: What is the total market value of common shares at Dec 31, 2021 (Round your answer to whole numbers. For example, $1,234,000 not $1.234 million.) B. What weights are assigned to debt, preferred shares and common equity on Dec 31, 2021 (Round all your answers to two decimal places. If you want to enter the number 12.34%, for example, enter 12.34 (not 0.1234) and do not enter the percent sign.) C. Calculate the after-tax cost of the various components of WACC (Round all your answers to two decimal places. If you want to enter the number 12.34%, for example, enter 12.34 (not 0.1234) and do not enter the percent sign.) 1. Bonds a. What is the nominal yield-to-maturity? b. What is the effective yield-to-maturity? c. Calculate the after-tax cost of new debt (using the effective yield-to-maturity). 2. Preferred shares: 3. Common equity in the form of retained earnings: 4. Common equity in the form of new shares: D. What is the Weighted Average Cost of Capital if: 1. The company uses new debt, new preferred shares and just retained earnings? 2. The company uses new debt, new preferred shares and new common shares? E. How much of the new capital projects can be funded without using new shareholders? Unless directed otherwise; Percentages should be rounded to no decimal places. If you want to enter the number 12.34% for example, enter 1234 (not 0.1234) and do not enter the percent sign. Bond prices should be to two decimal places (eg. $1234) "Per share figures should be rounded to three decimal places (e.g. $1 234 per share) r Total dollar figures should be rounded to zero decimal places (e.g. $1,234) Read the above case carefully and gather the key facts in the space provided below. You will need these facts to solve each of the required questions so make sure you pay attention to the details of the case Key Facts Bonds Cal Maturity Period since Issuance of the Bonds Time to Maturity Key Facts Common Shares Dividend Growth Rate (g) Current Dividends (DO) 20 Key Facts Preferred Shares Preferred Share Dividends (D) Preferred Share Price (Pp) Authorized Preferred Shares Years Years ago 9 Years Common Share Price Total Value Raised $21,000,000 Issued and Outstanding Preferred Shares Authorized Common Shares Face Value (FV) Preferred Shares Floatation Cost Issued and Outstanding Common Shares Rate at Time of Issue (Coupon Rate %) 5.30% Common Share Floatation Cost Current Yield to Maturity (Current Rate %) Other Key Facts Number of Payments Per Year Corporate Tax Rate Debt Floatation Cost (%) After Tax Eraning for the Year Payout Ratio Project Cost nd market values of outstanding bonds, preferred shares and common shares: a. What is the market value of each bond? (Enter your answer to two decimal places. (e.g. S1234)) b. What is the total market value of bonds at Dec 31, 2021 (Round your answer to whole numbers. For example, $1,234,000 not $1.234 million.) Solutions Outpat for Questions la Market Value of each bond Present Value of Coupon Payments Present value of Principal at maturity Solutions Output for Questions lb Market Value of Bonds Present Value of Coupon Payments Present value of Principal at maturity Current Value of the Bonds Total Market Value of the Bonds A. Find market values of outstanding bonds, preferred shares and common shares: a. What is the market value of each bond? (Enter your answer to two decimal places. (e.g. $12.34)) b. What is the total market value of bonds at Dec 31, 2021 (Round your answer to whole numbers. For example, $1,234,000 not $1,234 million.) Solutions Output for Questions la Market Value of each bond Present Value of Coupon Payments Present value of Principal at maturity Current Value of the Bonds Solutions Output for Questions 1b Market Value of Bonds Present Value of Coupon Payments Present value of Principal at maturity Total Market Value of the Bonds. 2. Preferred shares: What is the total market value of preferred shares at Dec 31, 2021 (Round your answer to whole numbers. For example, $1,234,000 not $1.234 million.) 3. Common shares: What is the total market value of common shares at Dec 31, 2021 (Round your answer to whole numbers. For example, $1,234,000 not $1.234 million.) Solutions Output for Questions 2 Total Market Value of Preferred Shares Solutions Output for Questions 3 Total Market Value of Common Shares Total Market Value of Preferred Share Total Market Value of Common Shares B. What weights are assigned to debt, preferred shares and common equity on Dec 31, 2021 Solutions Output for Questions B Weights of Debts, Preferred Shares and Common Shares Components Market Value Weights (Wd, Wp, We) Debts Preferred Shares Common Shares Total Capital

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

Step: 3

blur-text-image

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

Recession Proof Setups 21 Proven Stock Market Trading Strategies In A Bear Market

Authors: Matthew Giannino

1st Edition

1734554037, 978-1734554038

More Books

Students also viewed these Finance questions

Question

a. Supply decreases and demand is constant.

Answered: 1 week ago

Question

To find integral of sin(logx) .

Answered: 1 week ago