You are given the following information regarding the capital structure of Micro Advantage, Inc.: a. Micro Advantage,
Question:
You are given the following information regarding the capital structure of Micro Advantage, Inc.:
a. Micro Advantage, Inc., issued a $5,000,000, 20-year bond a year ago at 98 with a stated rate of 9%. Today, the bond is selling at 110. If the firm's tax bracket is 30%, what is the current after tax cost of this debt?
b. Micro Advantage, Inc., has $5,000,000 preferred stock outstanding that it sold for $24 per share. The preferred stock has a per share par value of $25 and pays a $3 dividend per year. The current market price is $30 per share. The firm's tax bracket is 30%. What is the after-tax cost of the preferred stock?
c. In addition to the bonds and preferred stocks described in (a) and (b) above, Micro Advantage has outstanding 50,000 shares of common stock that has a par value of $10 per share and a current market price of $170 per share. The expected after-tax market return on the firm's common equity is 20%.
Required
What is Micro Advantage's weighted-average cost of capital (WACC)?
Common StockCommon 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... Stocks
Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing... Capital Structure
Capital structure refers to a company’s outstanding debt and equity. The capital structure is the particular combination of debt and equity used by a finance its overall operations and growth. Capital structure maximizes the market value of a... Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of... 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,...
Step by Step Answer:
Given Data Problem Information ParValue of Bonds 5000000 ParValue of Pref Stock Outstanding 5000000 ...View the full answer
Cost Management A Strategic Emphasis
ISBN: 978-0077733773
7th edition
Authors: Edward Blocher, David Stout, Paul Juras, Gary Cokins
