Question 8:
First we calculate the before tax cost of debt using the YTM where nper =10, pmt = 3% *100 = 3, fv =100 and pv =100 + 2%*100 (flotation cost) = 102
YTM =rate(nper,pmt,pv,fv) in excel =rate(10,3,-102,100) = 2.78%
After tax cost of debt = pretax cost of debt *(1-tax rate) = 2.78%*(1-0.25) = 2.09%
After tax cost of debt = 2.09% (Option c)
Question 9
Total equity = 1.4*20 = 28 million
Total debt = 5 million
Total = 33 million
After tax cost of debt = 10%*(1-0.34) = 6.6%
Cost of equity = risk free rate + beta* market risk premium = 8+1.24*7 = 16.68%
WACC = 5/33*6.6 +28/33*16.68 = 15.15% = 15.2%
Answer = 15.2% (Option d)
8. Happy Tree Company just issued $100,000,000 of 10-year bonds with a coupon rate of 3%. The bonds were purchased...
16-3 Everything is the same except that ‘issued $2 million’ ‘with a coupon rate of 8 percent’ ‘a call price of $1,060’ at a discount of $20 per bond’ ‘total discount of $40,000. ‘flotation cost was $25,000’ ‘a $2 million new issue of 6 percent’ ‘The flotation … $30,000.’ ‘The … tax rate is 40 percent’, and (c) ‘at a 3.6 percent’. vear, $1,000 bonds with a co a with a coupon f$1,050 were sold 16-3 ount of $45,000. The...
1. Company B had issued 10-year bonds a year ago at the coupon rate 6%. The bond makes annual payments. The yield to maturity (YTM) of these bonds is 5%. The face value of the bond is $1000.Calculate the current bond price. 2. During 2017, company XYZ had sales 263658; costs 142213; depreciation expense 36358; interest expense 11698; tax rate 35 percent.Given this information what is company XYZ net income. 3. Company B has a second debt issue on the...
Problem 3 (10 marks) Husky Manufacturing Inc. currently has $15,000,000 in bonds outstanding with a coupon rate of 5% that is paid semi-annually. The bonds will mature in 5 years are currently selling at a quoted price of 92. The company also has 30,000 shares of 7% preferred stock outstanding currently selling for $95 per share with a par value of $100. In addition, the company has 500,000 common shares outstanding selling for $60 per share and with a book...
A Toys Company has 1.6 million shares in issue. The current market price is $35 per share. The company’s debt is publicly traded on the London Stock Exchange and the most recent quote for its price was at 96% of face value. The debt has a total face value of $ 8 million and the company’s credit risk premium is currently 2.9%. The risk-free rate is 3.4% and the equity market risk premium is 7%. The company’s beta is estimated...
HAPPY stock returns have a covariance with the market portfolio of 0.036. The standard deviation of the returns on the market portfolio is 20%, and the expected market risk premium is 7.5%. The company has bonds outstanding total market value of $35 million. The bond is 10% annual coupon with one-year maturity and sold each at 101.852% of the face value of $1000. The company also has 6 million shares of common stock outstanding, each selling for $20. The corporate...
Shanken Corp. issued a bond with a maturity of 10 years and a semiannual coupon rate of 10 percent 4 years ago. The bond currently sells for 94 percent of its face value. The book value of the debt issue is $55 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 14 years left to maturity; the book value of this issue is $30 million and the bonds sell for 55...
Corn Farm issued a bond with 25 years to maturity and a semiannual coupon rate of 4 percent 5 years ago. The bond currently sells for 104 percent of its face value. The company’s tax rate is 24 percent. The book value of the debt issue is $50 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 7 years left to maturity; the book value of this issue is $35 million,...
ou are looking at the following information: Debt: 5,500 9 percent coupon bonds outstanding, $1,000 par value, 20 years to maturity, selling for 104 percent of par; the bonds make semiannual payments. Common stock: 126,500 shares outstanding, selling for $63 per share; the beta is 1.12. Preferred stock: 18,500 shares of 7.5 percent preferred stock (review my Ch.8 slide 43: what does "...% preferred stock" phrase mean?) outstanding, currently selling for $105 per share. Market: 10.5 percent market risk...
Company CZZ Company CZZ has just issued 5-year bonds, coupon rate 3 % and face value € 1000. If the bonds make annual payments and the YTM is 4% calculate the current bond price.
(b) Calculate the WACC for the following firm: Debt: 40,000 bonds with coupon rate of 5% paid annually and face value of $100. The bonds are currently trading for $85 each and have 10 years until maturity. The yield to maturity of the bonds is 7.15% p.a. before tax. Common stock: 150,000 ordinary shares currently trading for $50 per share. The most recent dividend from the stock has been $5 per share and the dividend is expected to grow at...