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you are employed by Stetson, a fortune 500 firm that is a major producer of pharmaceuticals. You are on the corporate staff as an assistant
you are employed by Stetson, a fortune 500 firm that is a major producer of pharmaceuticals. You are on the corporate staff as an assistant to the vice president of finance. This is a position with high visibility in the opportunity for rapid advancement, providing you make the right decisions. Your buck has asked you to estimate the weighted average cost of capital for the company. Following is the balance sheet and information about Stetson. Assets Amount Current assets $48,000,000 Bet plant, property, and equipment $97,000,000 Total assets $145,000,000 Liabilities & equity Accounts payable $4,000,000 Accruals $5,000,000 Current liabilities $9,000,000 Notes Payable $6,000,000 Long term debt (50,000 bonds/1,000 face value) $50,000,000 Total Liabilities $65,000,000 Common stock (6,000,000 shares) $30,000,000 Retained earnings $50,000,000 Total shareholders equity $80,000,000 Total liabilities & shareholders equity $145,000,000 The notes payable our bank loans and the interest rate on this day is 6%, the same as the rate on the new bank loans. these bank loans are not used for seasonal financing but instead are part of the companies permanent capital structure. Long term bonds consist of 50,000 bonds each with the par value at $1000 and an annual coupon rate of 7.5% in the 20 year maturity. You check the Wall Street Journal and see that the going interest rate a new long-term date, RD is 9% and this is the present yield to maturity on these bonds. The better for your company is approximately equal to 1.12. The yield on a 20 year treasury bond is 4%. The expected return on the stock market is 10.5%. The common stock sales at a price of $30 per share. Stetson is in the 40% far bracket a. using the CAPM approach, what is the best estimate of the cost for equity for Stetson? b. what is the market price for bonds? c. what is the market value capital structure for this firm? d. using the weights from parts C what is the company's weight average cost of capital?
you are employed by Stetson, a fortune 500 firm that is a major producer of pharmaceuticals. You are on the corporate staff as an assistant to the vice president of finance. This is a position with high visibility in the opportunity for rapid advancement, providing you make the right decisions. Your buck has asked you to estimate the weighted average cost of capital for the company. Following is the balance sheet and information about Stetson.
Assets Amount
Current assets $48,000,000
Bet plant, property, and equipment $97,000,000
Total assets $145,000,000
Liabilities & equity
Accounts payable $4,000,000
Accruals $5,000,000
Current liabilities $9,000,000
Notes Payable $6,000,000
Long term debt (50,000 bonds/1,000 face value) $50,000,000
Total Liabilities $65,000,000
Common stock (6,000,000 shares) $30,000,000
Retained earnings $50,000,000
Total shareholders equity $80,000,000
Total liabilities & shareholders equity $145,000,000
The notes payable our bank loans and the interest rate on this day is 6%, the same as the rate on the new bank loans. these bank loans are not used for seasonal financing but instead are part of the companies permanent capital structure.
Long term bonds consist of 50,000 bonds each with the par value at $1000 and an annual coupon rate of 7.5% in the 20 year maturity. You check the Wall Street Journal and see that the going interest rate a new long-term date, RD is 9% and this is the present yield to maturity on these bonds.
The better for your company is approximately equal to 1.12. The yield on a 20 year treasury bond is 4%. The expected return on the stock market is 10.5%. The common stock sales at a price of $30 per share. Stetson is in the 40% far bracket
a. using the CAPM approach, what is the best estimate of the cost for equity for Stetson?
b. what is the market price for bonds?
c. what is the market value capital structure for this firm?
d. using the weights from parts C what is the company's weight average cost of capital?
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