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Ferrix, CFO of HTML Corporation, just hired you as a Finance Manager to review the capital structure of the firm. An extract of the
Ferrix, CFO of HTML Corporation, just hired you as a Finance Manager to review the capital structure of the firm. An extract of the Statement of Financial Position for the year ended March 31, 2022 is shown below: Statement of Financial Position Bonds (6.4% coupon rate payable semi-annually, $1,000 par, 10 years to maturity) Common stock ($8 par) Notel: Book value is calculated by par value times the outstanding number of bonds or stocks. Current trading prices are $840 for each bond and $14.7 for each share of common stock respectively. Required Dividends just paid for common stock were $2.80 per share last year and are projected to have an annual growth rate of 5% forever. The firm is in a 40% tax bracket. (a) (b) (c) (d) (e) TOTAL Notel 3,000,000 Compute the outstanding number of bonds and common stocks. Based on your answer in part (a), compute the weighting of EACH type of financing based on the market value. [% in 2 d.p.] YTM 2 3.2% R% 4.5% 720,000 4,620,000 Compute the after-tax cost of debt by using the interpolation method between 3.2% and 4.5% in accordance to the table below. (Hint: Please refer to Topic 8 (Ch12)'s PPT Slide#15) Bond Price P $840 P Compute the cost of equity using dividend growth model. Based on your answer in part (b), (c) and (d), compute HTML's weighted average cost of capital (% in 2 d.p.).
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