rate positively ..
Rate of equity = | |||||||||
Using CAPM rate of equity = Risk free rate + market risk premium * beta | |||||||||
=5%+7.5%*1.35 | |||||||||
15.1250% | |||||||||
Rate of debt (after tax) | |||||||||
we have to use financial calculator to compute YTM | |||||||||
Put in calcualtor | |||||||||
PV | -1160 | ||||||||
FV | 1000 | ||||||||
PMT | 1000*7.5%/2 | 37.5 | |||||||
N | 40 | ||||||||
Compute I | 3.05% | ||||||||
YTM = | 6.10% | ||||||||
tax rate = | 30% | ||||||||
therefore rate of debt (after tax) = | 4.27% | ||||||||
rate of debt (after tax) = | 4.27% | ||||||||
rate of preferred stock = Annual dividend/Current price | |||||||||
=6/91 | |||||||||
6.59% | |||||||||
Working for rest of question | |||||||||
Computation of Weight and WACC | |||||||||
Market value | weight | Cost of capital | weight * cost | ||||||
Source | |||||||||
equity | 304500000 | =8.7mil*35 | 60.51% | 15.13% | 9.15% | ||||
debt | 170520000 | =147000*1000*116% | 33.89% | 4.27% | 1.45% | ||||
preferred stock | 28210000 | =310000*91 | 5.61% | 6.59% | 0.37% | ||||
503230000 | 10.97% | ||||||||
WACC= | 11% | ||||||||
Ans= | 11 |
Question 30 10 points Save Answer Raymond Mining Corporation has 8.7 million shares of common stock...
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Raymond Mining Corporation has 8.7 million shares of common stock outstanding, 310,000 shares of 6% $100 par value preferred stock outstanding, and 147,000 7.50% semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $35 per share and has a beta of 1.35, the preferred stock currently sells for $91 per share, and the bonds have 20 years to maturity and sell for 116% of par. The market risk premium is 7.5%, T-bills are yielding 5%, and...
Raymond Mining Corporation has 8.7 million shares of common stock outstanding, 310,000 shares of 6% $100 par value preferred stock outstanding, and 147,000 7.50% semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $35 per share and has a beta of 1.35, the preferred stock currently sells for $91 per share, and the bonds have 20 years to maturity and sell for 116% of par. The market risk premium is 7.5%, T-bills are yielding 5%, and...
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