Final Exam (Part II)
ProfArgeol (Not rated)
(Not rated)
Final Exam (Part II) 50 points | ||||||||||
Given the following information for Syarikat Co., find the WACC. The company's tax rate is 35%. | ||||||||||
Debt: 7,000 8% coupon bonds outstanding, 20 years to maturity, selling for 104% of par, bonds make semiannual payments | ||||||||||
Common Stock: 120,000 shares outstanding, selling for $82 per share, beta is 1.20 | ||||||||||
Preferred Stock: 10,000 shares preferred stock outstanding, $8.25 dividend, currently selling for $80 per share | ||||||||||
Market: 7% market risk premium and 4.5% risk-free rate | ||||||||||
Syarikat Company | ||||||||||
Tax Rate (T) | 35% | |||||||||
Your task is the following: | ||||||||||
To find the weighted average cost of capital. But in oder to do so, you must find all the other component costs first. | ||||||||||
For instance in the case of debt, you must know the coupon rate, par value, years to maturity, payment, number of bonds outstanding, | ||||||||||
current price, and total value of the debt and the cost of debt before and after tax. You MUST show each calculation and the the final cost of debt. | ||||||||||
To simplify matters for you, all the variables are listed in the box for cost of debt. The same thing applies to the other costs and for calculating the weights. | ||||||||||
Using all these information, you calculate the WACC. | ||||||||||
Debt | Coupon Rate | Common Stock | P0 | |||||||
Par Value | Beta | |||||||||
Years to maturity | Market Premium | |||||||||
Payment Schedule | Semi-annual | Risk-free Rate | ||||||||
Number of bonds | Shares outstanding | |||||||||
Price as percent of par value | Total Value (# shares * share price) | |||||||||
Current Price (Par value * selling % of par) | ||||||||||
Total Value (# bonds * price per bond) | rs = Rf + (RM - Rf) βs | |||||||||
FV | Cost of Internal Equity rs = | |||||||||
PV | ||||||||||
N | Preferred Stock | P0 | ||||||||
PMT | Shares outstanding | |||||||||
I/Y = | Dividend | |||||||||
Cost of Debt (Annual YTM ) rd = | Total Value (# shares * share price) | |||||||||
Weights | Total Market Value of the Firm = Total Value of Debt + Total Value of CS + Total Value of PS | rP = D / P0 | ||||||||
Total Market Value of the Firm = | ||||||||||
Cost of Preferred stock rP = | ||||||||||
Weight of Debt wd = Value debt / value of the firim | ||||||||||
Weight of CS wc = value of common stock / value of the firm | WACC = wc * rs + wp * rp + wd * rd * (1-T) | |||||||||
Weight of PS wp = value of preferred stock / value of the firm | WACC = | |||||||||
WACC = | ||||||||||
- 10 years ago
100% ACCURATE ANSWER RELIABLE A++ TUTORIAL PLAGIARISM FREE PERFECT GUIDE
NOT RATED
Purchase the answer to view it
- final_exam_part_ii.xlsx