Question
The Good Life Co. has the following securities outstanding: -Firm has outstanding an issue of 11%, semi-annual coupon bonds, par value $1000 with 5 years
The Good Life Co. has the following securities outstanding:
-Firm has outstanding an issue of 11%, semi-annual coupon bonds, par value $1000 with 5 years remaining to maturity. The bonds currently sell at 110% of par. There are 10,000 bonds outstanding.
-The firms common stock currently is selling at $50 per share. Value Line reports the firm's beta as 1.5. The t-bill rate is 6% and the return on the S&P 500 is 11%. The firms last dividend (Do) was $2.00 per share & the dividends are expected to grow at a rate of 10% annually indefinitely. There are 2,000,000 common shares outstanding.
-Firm has no preferred stock in its capital structure
-The firms tax rate is 40%
Questions to be answered:
(a) Calculate the costs of the components to be used in the WACC. (LT Debt & Common Equity
(Take Average of 2 methods for common equity)
(b) Calculate the firms market value capital structure
(c) Calculate the firms WACC
Please show all your work to support your answers. Thank you!
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