Finding the WACC. Hankins Corporation has 5.4 million shares of common stock outstanding, 290,000 shares of 5.6 percent
a. What is the firm’s market value capital structure?
b. If the firm is evaluating a new investment project that has the same risk as the firm’s typical project, what rate should the firm use to discount the project’s cash flows?
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Essentials of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
- Consider the following information for Watson Power Company: Debt: Common stock: Preferred stock: Market: 4,000 8 percent coupon bonds outstanding, $1,000 par value, 21 years to maturity, selling for 102 percent of par; the bonds make semiannual payments. Find the WACC. 96,000 shares outstanding, selling for $56 per share; the beta is 1.07. 13,500 shares of 7 percent preferred stock outstanding, currently selling for $104 per share. 9.5 percent market risk premium and 7 percent risk-free rate. Assume the company's tax rate is 34 percent.arrow_forwardYou are given the following information on Parrothead Enterprises: Debt: 9,500 7 percent coupon bonds outstanding, with 25 years to maturity and a quoted price of 105.25. These bonds pay interest semiannually and have a par value of $1,000. Common stock: 250,000 shares of common stock selling for $65.00 per share. The stock has a beta of .95 and will pay a dividend of $3.20 next year. The dividend is expected to grow by 5 percent per year indefinitely. Preferred stock: 8,500 shares of 4.5 percent preferred stock selling at $94.50 per share. The par value is $100 per share. Market: , 11.5 percent expected return, risk - free rate of 3.85 percent, and a 25 percent tax rate. Calculate the company's WACC. Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g ., 32.16. WACC % You are given the following information on Parrothead Enterprises: Debt: Common stock: 9,500 7 percent coupon bonds outstanding, with 25 years to maturity and…arrow_forwardA firm has 1 million shares outstanding with a book value per share of $10 per share. The stock sells for a price of $20 per share. The firm’s bonds have a par value of $8 million and are currently selling at a price of 120 percent of par. What is the appropriate proportion of equity to use in the WACC calculation? 71.4 percent 51.0 percent 55.6 percent 48.0 percent 67.6 percentarrow_forward
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- 17. Calculating the WACC You are given the following information concerning Parrothead Enterprises: Debt: Common stock: Preferred stock: Market: 13,000 6.4 percent coupon bonds outstanding, with 15 years to maturity and a quoted price of 107. These bonds pay interest semiannually. 345,000 shares of common stock selling for $76.50 per share. The stock has a beta of .90 and will pay a dividend of $3.80 next year. The dividend is expected to grow by 5 percent per year indefinitely. 10,000 shares of 4.4 percent preferred stock selling at $86 per share. 11 percent expected return, risk-free rate of 3.6 percent, and a 22 percent tax rate. Calculate the company's WACC.arrow_forwardYou are given the following information on Parrothead Enterprises: Debt: Common stock: Preferred stock: 9,600 7.1 percent coupon bonds outstanding, with 24 years to maturity and a quoted price of 105.5 . These bonds pay interest semiannually and have a par value of $1,000. 255,000 shares of common stock selling for $65.10 per share. The stock has a beta of .96 and will pay a dividend of $3.30 next year. The dividend is expected to grow by 5.1 percent per year indefinitely. Market: 8,600 shares of 4.55 percent preferred stock selling at $94.60 per share. The par value is $100 per share. 11.4 percent expected return, risk-free rate of 3.9 percent, and a 21 percent tax rate. Calculate the company's WACC. Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimalarrow_forwardTrue or False. A company borrows additional financing and as a result their weight of debt increases (holding dollars of equity constant). Because the weight of debt increases, the company's WACC will always decrease. True O Falsearrow_forward
- Given the following information for Watson Power Co., Find the WACC. Assume the company’s tax rate is 35 percent. Debt: 10,000 6.4 percent coupon bonds outstanding. $1,000 par value, 25 years to maturity, selling for 108 percent of par, the bonds make semiannual payments. Common stock: 495,000 shares outstanding, selling for $63 per share; the beta is 1.15. Preferred stock: 35,000 shares of 3.5 percent preferred stock outstanding, currently selling for $72 per share Market: 7 percent market risk premium and 3.2 percent risk-free rate.arrow_forwardThe Nile Corporation has 9.9 million shares of common stock outstanding and 430,000 6 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $47 per share and has a beta of 1.45. The bonds have 20 years to maturity and sell for 118 percent of par. The market risk premium is 8.7 percent, T-bills are yielding 5 percent, and the company's tax rate is 24 percent a. What is the firm's market value capital structure? Note: Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616. b. If the company is evaluating a new investment project that has the same risk as the firm's typical project, what rate should the firm use to discount the project's cash flows? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a. Debt Equity b. Discount rate 0.5218 0.4782 6.95 %arrow_forwardEvenflow Corp has 9 million shares of common stock outstanding, 250,000 shares outstanding of preferred stocks, and 8,000 semiannual bonds outstanding. 4. There are 8,000 semiannual bonds paying a 6.5% coupon with 20 years to maturity and currently selling for $920 per $1000 face value. b. The preferred stocks are selling for $93 paying $5constant dividends. The current market price of the stock is $57 and the beta is 1.05. The market risk premium is 8% and 4.5% risk-free rate. а. с. What is the weighted average cost of capital (WACC) if the marginal tax rate is 35%? If the cash flow from assets are -$135,000 in year 0, $46,000 in year 1, $57,000 in year 2, and $62,000 in year 3, should the firm accept or reject the project? The floatation costs for issuing debt, preferred stock and common stock are 5%, 3% and 7%, respectively. The firm plans to maintain the same capital structure. Considering floatation costs, should the project still be accepted? Why or why not? The firm is embarking…arrow_forward
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