Whitley Motors Inc has the following capital Debt The firm issued 900 25 year bonds five years ago which were sold at a par value of $1,000 The bonds carry a coupon rate of 7 , but are currently selling to yield new buyers 10 Preferred stock 3,500 shares of 8 preferred were sold 12 years ago at a p...

First develop the market based capital structure by valuing the capital components Debt Use a financ ...

Whitley Motors Inc. has the following capital. Debt: The firm issued 900 25-year bonds five years ago

Question:

Whitley Motors Inc. has the following capital.
Debt: The firm issued 900 25-year bonds five years ago which were sold at a of $1,000. The bonds carry a rate of 7%, but are currently selling to yield new buyers 10%.
Preferred stock: 3,500 shares of 8% preferred were sold 12 years ago at a of $50. They’re now priced to yield 11%.
Equity: The firm got started with the sale of 10,000 shares of at $100 per share. Since that time earnings of $800,000 have been retained. The stock is now selling for $89. Whitley’s business plan for next year projects net income of $300,000, half of which will be retained.
The firm’s marginal tax rate is 38% including federal and state obligations. It pays flotation costs of 8% on all new stock issues. Whitley is expected to grow at a rate of 3.5% indefinitely and recently paid an annual of $4.
Develop Whitley’s WACC before and after the retained earnings break and indicate how much capital will have been raised when the break occurs.

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...