Testas Brew Case

Testas Brews Inc is a publicly traded company based in Allentown, Pennsylvania that produces and sells various types of beverages, including soft drinks. juices, and energy drinks. The company has been in operation for over 20 years and has established itself as a leader in the beverage industry.

One of the company's most popular products is a nationally recognized beer brand. The beer is known for its unique taste and has become a staple at bars and restaurants across the country.

As of the end of the last fiscal year, Testas Brews Inc had 20 million outstanding shares of common stock, which were trading at a price of $50 per share. The company also had three outstanding bonds with different face values, coupons, and prices, as follows:

Bond A: Face value of $30 million, annual coupon rate of 5%, priced at 90% of face value, and maturity of 5 years.

Bond B: Face value of $30 million, annual coupon rate of 6%, priced at 90% of face value, and maturity of 10 years.

Bond C: Face value of $40 million, annual coupon rate of 8.0%, priced at 105% of face value, and maturity of 15 years.

It's worth noting that Testas Brews Inc does not have any other debt besides the bonds provided.

In addition to common stock, the company has 1 million outstanding shares of preferred stock, which are trading at a price of $50 per share and have an annual dividend of $4 per share. Testas Brews Inc's management team has determined that the company's beta is 1.1, and they want to calculate the weighted average cost of capital (WACC) for the company.

Assume the following additional information:

The current risk-free rate is 2%.

The current market risk premium is 6%.

The last annual dividend of the common stock was $3 per share (D0)

The estimated dividend growth rate for the company is 5%

Corporate Tax Rate is 25%

Question

1. Calculate the market value of equity for Testas Brews Inc based on the number of outstanding shares and the price per share.

2. Determine the cost of common equity using the average of the values found in the Capital Asset Pricing Model (CAPM) and the Dividend Growth Model (DGM).

3. Calculate the market value of debt for Testas Brews Inc based on the outstanding bonds provided.

4. Calculate the cost of debt based on the given bond information. For simplicity. you can use the Average of YTM of the three bonds the company has.

5. Calculate the market value of preferred stock for Testas Brews Inc based on the number of outstanding shares and the price per share.

6. Determine the cost of preferred stock using the dividend amount and price per share.

7. Use the market values and costs of equity. debt, and preferred stock to calculate the weighted average cost of capital (WACC) for Electric City Brews Inc.

Use excel to Show all calculations and formulas used.