Question

The Wall Company has 142,500 shares of common stock outstanding that are currently selling at $28.63. It has 4,640 bonds outstanding that won't mature for 20 years. They were issued at a par value of $1,000 paying a coupon rate of 6%. Comparable bonds now yield 9%. Wall's $100 par value preferred stock was issued at 8% and is now yielding 13%; 8,500 shares are outstanding. Assume that the coupon payments are semi-annual. Develop Wall's market value based capital structure. Round the values to the nearest dollar and the weights to two decimal places of percentage. Do not round your intermediate calculations. Round PVF and PVFA values in intermediate calculations to four decimal places. Component Value Capital Structure Debt $ % Preferred stock % Equity % Total Capital $ %

Answer 1

If Semi Annual Coupon Nper payment Number of periods Present value Face value Yield to maturity 20*2 Pmt 40 Nper 1000*0.06* 1/2 $ Pmt 30.00 0.09 1/2 Rate 0.045 Pv 1,000.00 Fv Fv Rate (-PV(rate,nper,pmt,fv)) (-PV(0.045,40,30,1000)) $723.98 Pv Current price of Bond 723.98 Dividend/Rate Preference stock Price (100 0.08)/0.13 $ 61.54 $ Equity Price 28.63 Capital Structure Value 4640*723.98 8500 61.54 42.19% Debt 3,359,249.72 Prefence stock Common Equity $ 6.57% 523,076.92 142500 28.63 51.24% 4,079,775.00 Total capital $ 100.00% 7,962,101.65