3) Company currently has 1.2 million common shares of stock outstanding and the stock has a beta of 1.5. It also has $10 million face value of bonds that matures 26 July 2042 and 7 % coupon with annual payments and are priced to yield 14%. Use actual/actual convention method. Settlement date is 8 April 2021. If the company issues up to $ 2,500,000 of new bonds, the bonds will be priced at par and have a yield of 14 %; if it issues bonds beyond $2,500,000, the expected yield on the entire issuance will be 15 %. Company has known that market value of its shares is traded at the value of $10 a share and the new shares can be sold at the same price. The current risk-free rate is 3 % and the expected market return is 10 %. Company’s tax rate is 30 %. What is the WACC if Company raises $7.5 million of new capital (both equity and debt) while maintaining the same debt-to-equity ratio?

3) Company currently has 1.2 million common shares of stock outstanding and the stock has a beta of 1.5. It also has $10 million face value of bonds that matures 26 July 2042 and 7 % coupon with annual payments and are priced to yield 14%. Use actual/actual convention method. Settlement date is 8 April 2021. If the company issues up to $ 2,500,000 of new bonds, the bonds will be priced at par and have a yield of 14 %; if it issues bonds beyond $2,500,000, the expected yield on the entire issuance will be 15 %. Company has known that market value of its shares is traded at the value of $10 a share and the new shares can be sold at the same price. The current risk-free rate is 3 % and the expected market return is 10 %. Company’s tax rate is 30 %. What is the WACC if Company raises $7.5 million of new capital (both equity and debt) while maintaining the same debt-to-equity ratio?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 13P

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