Question

Dinklage Corp. has 9 million shares of common stock outstanding. The current share price is $69, and the book value per share is $8. The company also has two bond issues outstanding. The first bond issue has a face value of $70 million, a coupon rate of 6 percent, and sells for 94 percent of par. The second issue has a face value of $55 million, a coupon rate of 5 percent, and sells for 106 percent of par. The first issue matures in 24 years, the second in 9 years.

Suppose the most recent dividend was $4.25 and the dividend growth rate is 4.4 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 25 percent. What is the company’s WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer 1

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Home nert Page Layout Formulas Data Review View dd-Ins s Cut aCopy E AutoSum ー E " ゴWrap Text в 1 프 . Ej-., Δ. : rーー 逻锂函Merge & Center. $, % , 弼,8 Conditional Format eCell Insert Delete Format Paste Sort &Find & Format Painter Formatting as Table Styles2 Clear Clipboard Font Alignment Number Cells Edting CC342 ke- св CD CE CF CG CH CI CJ CK CL CM 324 325 326 327 328 329 330 331 332 ECOND BOND ISSUE COUPON PRICE FACE VALUE YEARS YTM (SEMI ANNUAL) YTM (ANNUAL) 5% 1060 106% of face value 1000 1000 2.0964% EXCEL-RATE(9*2,-50/2, 1060,-1000) 4.1928% MARKET VALUE OF FIRST BOND ISSUE MARKET VALUE OF SECOND BOND ISSUE 70 X 94% 55 X 106% 65.80 58.30 124.10 334 335 336 337 338 339 340 341 342 4 H KE CAPM UTILITY, SH WEIGHTED AVERAGE COST OF DEBT = 5.4145% (65.8/124.1) * 6.4969% + (58.3/124.1)*4.1928% ke = 10.83% beta bond c (DGM L ture INDEX CİNTL CAP BUD ING PV, FV, ANNUITYDIR cleanYIELD bond cap stru WACC RESI ex di 福 130% rences: CF135 05:25 28-01-2019