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The following table gives the balance sheet for Travellers Inn Inc. ( TII ) , a company that was formed by merging a number of
The following table gives the balance sheet for Travellers Inn Inc. TII a company that was formed by merging a number of regional motel chains.
The following facts also apply to TII:
yield to maturity.
The stock has a beta of The Tbond rate is and is estimated to be
responses suggested a risk premium over TII bonds of percentage points.
TII is in the federalplusstate tax bracket.
a What are the current market value weights for debt, preferred stock, and common stock? Hint: Do your work in dollars, not millions of dollars.
b What is the aftertax cost of debt?
c What is the cost of preferred stock?
d What is the required return on common stock using CAPM?
f What is the required return on common stock using the ownbondyieldplusjudgmentalriskpremium approach?
g What is Travellers' WACC? Use the required returns on stock from part e
Please use Excel if possible to answer the question and show the formula.
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