Taunton Corp. Suppose you have been hired as a financial consultant to Taunton Corp., a large, publicly traded firm that is the market share leader in radon detection systems (RDSS). The company is looking at setting up a manufacturing plant overseas to produce a new line of RDS. The project will require an investment of $9.0 million dollars and the president of the company wants to be sure she understands her cost of capital before going ahead with the decision. Market information for the latest year-end (December 31/2020) is as follows: Debt The company has issued 14,300 bonds, each with a par value of $1,000 and a coupon rate of 5.40 percent (payable semi-annually). The bonds were issued 9 years ago with a 20 year maturity. They are currently selling for $1039.00 each. Preferred Stock 151,000 preferred shares have been authorized (with 127,000 issued and outstanding) The closing price of preferred shares was $31.30 per share. D Common Equity 507,000 common shares have been authorized (with 451,000 shares issued and outstanding). Common shares are selling for $77.00 per share. Taunton Corp. uses G. M. Wharton as its lead underwriter, Wharton charges 3.00 percent commission on new common stock issues, 4.00 percent on new preferred stock issues, and 5.00 percent on new debt issues. Wharton has included all direct and indirect flotation costs in these rates. The preferred shares were issued six years ago and pay an annual dividend of $1.25 per share. Last year, Taunton Corp. declared and paid a common share dividend of $1.16 per share. This represented a 3.00 percent growth in the common share dividend (a rate that is expected to continue into the future) and a dividend payout ratio of 45.0 percent (also expected to continue into the future), Taunton Corp.'s tax rate is 45.0 percent. Preliminary year end results show net earnings (after interest, taxes and preferred share dividends) for the year ending December 31, 2020 is $6.0 million. Taunton Corp. The following table is presented to help you organize the information from the case: (Note: not all of these varies can be found in the case. You may bowe: to colate one or more of them) Bands Pref Common Y: 01:1 Tes Pp: - PO: FI F EN F: Dp: 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. (ee $12.34)) b. What is the total market value of bonds at Dec 31, 2020 (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, 2020 (Round your answer to whole numbers. For example, $1,234,000 not $1.234 million) 3. Corrumon shares: What is the total market value of common shares at Dec 31, 2020 (round your awer to whole numbers. For example 51.41.000 not 51.23Audio) B. What weights are assigned to debt, preferred shares and common equity on Dec 31, 2070 [Round your answer to two decimal places. (ex: 12.34). Do not enter the percent sion) percent Dett Preferred Common percent C. Calculate the after-tax cost of the various components of WACC (Hound your answer to two decimal places. (ex. 12:34). Do not enter the percent sien) 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). percent percent percent 2. Preferred shares: percent 3. Common equity in the form of retained earnings: Ipercent 4. Common equity in the form of new shares: Ipercer D. What is the weighted Average cost of capitalit: inter your answer to two decimal places 12.34). Do not enter the percent in 41 2 Supg 44 1 the company uses new debt, new preferred shares and just retained earnings? found at byures to two decimal places tee 12.31) Do not enter the percent) Debt Pret Common per percent percent percent WACC 17 8 2 Altera Cost Weighted Cost Weights 2. the company uses new debt, new preferred shares and new common shares? (Round all figures to two decimal places lee 12.34). Do not enter the percent sign.) Debt Pref Common WACC percent E. How much of the new capital projects can be funded without using new shareholders? (Enter your answer in whole numbers. For example, $1,234,000 not $1.234 million.) Taunton Corp. Suppose you have been hired as a financial consultant to Taunton Corp., a large, publicly traded firm that is the market share leader in radon detection systems (RDSS). The company is looking at setting up a manufacturing plant overseas to produce a new line of RDS. The project will require an investment of $9.0 million dollars and the president of the company wants to be sure she understands her cost of capital before going ahead with the decision. Market information for the latest year-end (December 31/2020) is as follows: Debt The company has issued 14,300 bonds, each with a par value of $1,000 and a coupon rate of 5.40 percent (payable semi-annually). The bonds were issued 9 years ago with a 20 year maturity. They are currently selling for $1039.00 each. Preferred Stock 151,000 preferred shares have been authorized (with 127,000 issued and outstanding) The closing price of preferred shares was $31.30 per share. D Common Equity 507,000 common shares have been authorized (with 451,000 shares issued and outstanding). Common shares are selling for $77.00 per share. Taunton Corp. uses G. M. Wharton as its lead underwriter, Wharton charges 3.00 percent commission on new common stock issues, 4.00 percent on new preferred stock issues, and 5.00 percent on new debt issues. Wharton has included all direct and indirect flotation costs in these rates. The preferred shares were issued six years ago and pay an annual dividend of $1.25 per share. Last year, Taunton Corp. declared and paid a common share dividend of $1.16 per share. This represented a 3.00 percent growth in the common share dividend (a rate that is expected to continue into the future) and a dividend payout ratio of 45.0 percent (also expected to continue into the future), Taunton Corp.'s tax rate is 45.0 percent. Preliminary year end results show net earnings (after interest, taxes and preferred share dividends) for the year ending December 31, 2020 is $6.0 million. Taunton Corp. The following table is presented to help you organize the information from the case: (Note: not all of these varies can be found in the case. You may bowe: to colate one or more of them) Bands Pref Common Y: 01:1 Tes Pp: - PO: FI F EN F: Dp: 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. (ee $12.34)) b. What is the total market value of bonds at Dec 31, 2020 (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, 2020 (Round your answer to whole numbers. For example, $1,234,000 not $1.234 million) 3. Corrumon shares: What is the total market value of common shares at Dec 31, 2020 (round your awer to whole numbers. For example 51.41.000 not 51.23Audio) B. What weights are assigned to debt, preferred shares and common equity on Dec 31, 2070 [Round your answer to two decimal places. (ex: 12.34). Do not enter the percent sion) percent Dett Preferred Common percent C. Calculate the after-tax cost of the various components of WACC (Hound your answer to two decimal places. (ex. 12:34). Do not enter the percent sien) 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). percent percent percent 2. Preferred shares: percent 3. Common equity in the form of retained earnings: Ipercent 4. Common equity in the form of new shares: Ipercer D. What is the weighted Average cost of capitalit: inter your answer to two decimal places 12.34). Do not enter the percent in 41 2 Supg 44 1 the company uses new debt, new preferred shares and just retained earnings? found at byures to two decimal places tee 12.31) Do not enter the percent) Debt Pret Common per percent percent percent WACC 17 8 2 Altera Cost Weighted Cost Weights 2. the company uses new debt, new preferred shares and new common shares? (Round all figures to two decimal places lee 12.34). Do not enter the percent sign.) Debt Pref Common WACC percent E. How much of the new capital projects can be funded without using new shareholders? (Enter your answer in whole numbers. For example, $1,234,000 not $1.234 million.)