Current assets Net Fixed assets Total assets Accounts payable and accurals. Short term debt Long term debt Preferred Stock (10,000 shares) Common Stock (50,000 shares) Retained earnings Total common equity Total liabilities and equity $2,000 3,000 $5,000 $900 100 1,100 250 1,300 1,350 $2,650 $5,000 Sunrise's earnings per share last year were $3.20. The common stock sells for $52.00, last year's dividend (D.)was $2.25, and a flotation cost of 10% would be required to sell new common stock. Security analysts are projecting that the common dividend will grow at an annual rate of 8.8%. Sunrise's preferred stock pays a dividend of $2.90 per share, and its preferred stock sells for $25.00 per share. The firm's before-tax cost of debt is 12%, and its marginal tax rate is 25%. The firm's currently outstanding 10% annual coupon rate, long-term debt sells at par value. The market risk premium is 5.2%, the risk- free rate is 5.5%, and Sunrise's beta is 1.526. The firm's total debt, which is the sum of the company's short-term debt and long-term debt, equals $1.2 million. Use this data to answer the questions in the assignment. If Sunrise continues to use the same market-value capital structure, what is the firm's WACC assuming that (a) it uses only retained earnings for equity (fer cost of equity use the average of your calculated costs via DCF and CAPM)
Current assets Net Fixed assets Total assets Accounts payable and accurals. Short term debt Long term debt Preferred Stock (10,000 shares) Common Stock (50,000 shares) Retained earnings Total common equity Total liabilities and equity $2,000 3,000 $5,000 $900 100 1,100 250 1,300 1,350 $2,650 $5,000 Sunrise's earnings per share last year were $3.20. The common stock sells for $52.00, last year's dividend (D.)was $2.25, and a flotation cost of 10% would be required to sell new common stock. Security analysts are projecting that the common dividend will grow at an annual rate of 8.8%. Sunrise's preferred stock pays a dividend of $2.90 per share, and its preferred stock sells for $25.00 per share. The firm's before-tax cost of debt is 12%, and its marginal tax rate is 25%. The firm's currently outstanding 10% annual coupon rate, long-term debt sells at par value. The market risk premium is 5.2%, the risk- free rate is 5.5%, and Sunrise's beta is 1.526. The firm's total debt, which is the sum of the company's short-term debt and long-term debt, equals $1.2 million. Use this data to answer the questions in the assignment. If Sunrise continues to use the same market-value capital structure, what is the firm's WACC assuming that (a) it uses only retained earnings for equity (fer cost of equity use the average of your calculated costs via DCF and CAPM)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Transcribed Image Text:Current assets
Net Fixed assets
Total assets
Accounts payable and accurals
Short term debt
Long term debt
Preferred Stock (10,000 shares)
Common Stock (50,000 shares)
Retained earnings
Total common equity
Total liabilities and equity
$2,000
3,000
$5,000
$900
100
1,100
250
1,300
1,350
$2,650
$5,000
Sunrise's earnings per share last year were $3.20. The common stock sells for $52.00,
last year's dividend (D.)was $2.25, and a flotation cost of 10% would be required to sell
new common stock. Security analysts are projecting that the common dividend will grow
at an annual rate of 8.8%. Sunrise's preferred stock pays a dividend of $2.90 per share,
and its preferred stock sells for $25.00 per share. The firm's before-tax cost of debt is
12%, and its marginal tax rate is 25%. The firm's currently outstanding 10% annual
coupon rate, long-term debt sells at par value. The market risk premium is 5.2%, the risk-
free rate is 5.5%, and Sunrise's beta is 1.526. The firm's total debt, which is the sum of
the company's short-term debt and long-term debt, equals $1.2 million.
Use this data to answer the questions in the assignment.
If Sunrise continues to use the same market-value capital structure, what is the firm's
WACC assuming that
(a) it uses only retained earnings for equity (fer cost of equity use the average of your
calculated costs via DCF and CAPM)
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps with 3 images
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education