Answers
Given,
| Remarks | Particulars | Amount |
| t | Tax Rate | 34% |
| Fund requirements | 5,000,000 | |
| New bond issue lower than current yield to maturity by | 2.00% | |
| Existing | ||
| 5000, 8% Debt maturing in 10 years | 5,000,000 | |
| Current Market Price | 1,250 | |
| Payment frequency | Semi Annual | |
| 50,000 Equity shares | 5,000,000 | |
| Current Market Price | 72 | |
| B | Beta | 1.15 |
| 10,000, 2% Preferred shares | 1,000,000 | |
| Current Market Price | 65 | |
| Rm | Market Return | 6.00% |
| Rf | Risk free rate | 2.00% |
| Debt Equity Ratio of industry | 33.00% | |
| Fd | Flotation Rate for new debt | 3.00% |
| Fe | Flotation Rate for new equity | 5.00% |
| 1 | WACC = (E/ (MV))*Ke + (D/ (MV))*Kd*(1-t) + (P/MV)*Kp |
| E=Market value of equity | 3,600,000 |
| D=Market value of debt | 6,250,000 |
| P= Market value of Preferred stock | 650,000 |
| MV = Market value of Total capital | 10,500,000 |
| Ke= Rf + (Rm-Rf)*B = Cost of equity | 6.60% |
| Kd = Cost of debt | 8.00% |
| Kp= Cost of Preferred Stock | 2.00% |
| t=Tax rate | 34.00% |
| WACC = | 5.53% |
| 2 | New WACC after adding $5m new bonds |
| E=Market value of equity | 3,600,000 |
| D1=Market value of debt -existing | 6,250,000 |
| D2=Market value of debt - new | 5,000,000 |
| P= Market value of Preferred stock | 650,000 |
| MV = Market value of Total capital | 15,500,000 |
| Ke= Rf + (Rm-Rf)*B | 6.60% |
| Kd1 = Cost of debt - existing | 8.00% |
| Kd2 = Cost of debt - new | 6.1856% |
| Kp= Cost of Preferred Stock | 2.00% |
| t=Tax rate | 34.00% |
| WACC = | 5.06% |
| 3 | New WACC after adding $5m equity |
| E1 =Market value of equity - existing | 3,600,000 |
| D1=Market value of debt -existing | 6,250,000 |
| E2=Market value of equity - new | 5,000,000 |
| P= Market value of Preferred stock | 650,000 |
| MV = Market value of Total capital | 15,500,000 |
| Ke1= Rf + (Rm-Rf)*B | 6.60% |
| Ke2= (Rf + (Rm-Rf)*B)/(1-Fe) | 6.95% |
| Kd1 = Cost of debt - existing | 8.00% |
| Kp= Cost of Preferred Stock | 2.00% |
| t=Tax rate | 34.00% |
| WACC = | 5.99% |
| 4 | New WACC after adding $5m in current capital structure, i.e. 1:1 assuming capital structure taken at book value |
| E1 =Market value of equity - existing | 3,600,000 |
| D1=Market value of debt -existing | 6,250,000 |
| E2=Market value of equity - new | 2,500,000 |
| D2=Market value of debt - new | 2,500,000 |
| P= Market value of Preferred stock | 650,000 |
| MV = Market value of Total capital | 15,500,000 |
| Ke1= Rf + (Rm-Rf)*B | 6.60% |
| Ke2= (Rf + (Rm-Rf)*B)/(1-Fe) | 6.95% |
| Kd1 = Cost of debt - existing | 8.00% |
| Kd2 = Cost of debt - new | 6.1224% |
| Kp= Cost of Preferred Stock | 2.00% |
| t=Tax rate | 34.00% |
| WACC = | 5.52% |
Similar Solved Questions
1 answer
Help with 3,4,5,7 & 8! Biological Variability Fill in Data Table 1 with the number of...
Help with 3,4,5,7 & 8! Biological Variability Fill in Data Table 1 with the number of sow bugs your team observed in the light after the indicated times. Then fill in the deduced number of sow bugs that were in the dark at each of those times. Data Table 1. Sow Bug Team Data (1 pt.) Time in...
1 answer
What is the future value of $119,000 invested for 5 years at 8% compounded monthly? (a)...
What is the future value of $119,000 invested for 5 years at 8% compounded monthly? (a) State the type amortization future value present value ordinary annuity sinking fund (b) Answer the question. (Round your answer to the nearest cent.) $...
1 answer
On January 1, 2018 Friendly Farm Company purchased a new machine at a cost of $350,000....
On January 1, 2018 Friendly Farm Company purchased a new machine at a cost of $350,000. The machine has an estimated useful life of 4 years or 100,000 hours and residual value of $30,000. The machine will be used 30,000 hours in year 1, 40,000 hours in year 2, 20,000 hours in year 3 and 10,000 hours...
1 answer
Computer Networking
After having some wireless problems, you notice a new WAP has been turned on. It has the same SSID name as the corporate network and is set to the same channel as a nearby WAP, however, it isn’t connected to the wired network. Which is the MOST likely scenario that’s causing your wireles...
1 answer
Back to Assignment Attempts: Keep the Highest: /1 3. Effects of rent control Rent controls force...
Back to Assignment Attempts: Keep the Highest: /1 3. Effects of rent control Rent controls force landlords to price apartments below the equilibrium price level. An immediate effect is a shortage (excess demand) of apartments, because the quantity of apartments demanded is greater than the quantity ...
1 answer
Most nonsense mutations in a structural gene for a protein have a null phenotype. How many...
Most nonsense mutations in a structural gene for a protein have a null phenotype. How many different single base substitution mutations in a protein coding sequence can produce a nonsense mutation?...
1 answer
A balenced net ionic equation for sodium iodide solution and ammonium acetate solution
A balenced net ionic equation for sodium iodide solution and ammonium acetate solution...
1 answer
• From a health care information systems perspective, what is inherently problematic with the NCQA's model?...
• From a health care information systems perspective, what is inherently problematic with the NCQA's model? Recommend a solution to improve performance....
1 answer
The plot below shows the force exerted by a platform on Fred. He jumps. 1000 N...
The plot below shows the force exerted by a platform on Fred. He jumps. 1000 N Fred 800 N 600 N 400 N 200 N force platformm Os Is 2s 3s 4s 5s For what time or time interval is Fred motionless? At what time do Fred's feet leave the platform? What is Fred's motionless weight? What is Fred'...
1 answer
Review Part B H2 Express your answer to two significant figures and include the appropriate units....
Review Part B H2 Express your answer to two significant figures and include the appropriate units. mh,= Value Units Submit Request Answer Part C...
1 answer
The value of the constant a is P(x) = \\_(x)/2 a- A. a=0.5 mm-12 B. a...
The value of the constant a is P(x) = \\_(x)/2 a- A. a=0.5 mm-12 B. a = 1.0 mm-1/2 C. a= 2.0 mm-1/2 D. a = 1.0 mm-1 E. a=2.0 mm- x (mm) 0 1 2...
1 answer
2. Risk and Valuation. Suppose that a company paid a dividend of $1.75 this year and...
2. Risk and Valuation. Suppose that a company paid a dividend of $1.75 this year and expects dividends to grow at 5% indefinitely. a. If the company’s beta is 1.2, the market return is 8%, and the risk-free rate is 2.5%, what is the required rate of return for this company? (5 points) b. What ...
1 answer
4. i) Give the difference between binary trees and Binary search trees. Insert the values 50,...
4. i) Give the difference between binary trees and Binary search trees. Insert the values 50, 76, 21, 4, 32, 64, 15, 52, 14, 100, 2, 3, 70, 87, 80 in the BST [Show the steps]. Write the algorithm for all the 3 operations of BST ii) Insert the given items 16, 14, 10, 8, 7, 9, 3, 2, 4, l into the Min-...
1 answer
Restaurants do a large volume of business by credit and debit cards. Suppose Chocolate Passion restaurant...
Restaurants do a large volume of business by credit and debit cards. Suppose Chocolate Passion restaurant had these transactions on January 28, 2018: (Click the icon to view the transactions.) Read the requirements. Requirement 1. Suppose Chocolate Passion's processor charges a 3% fee and deposi...
1 answer
Multiple Choice Question 133 Sandhill's sells two products, a pepper relish with a selling price of...
Multiple Choice Question 133 Sandhill's sells two products, a pepper relish with a selling price of $5.95 and a variable cost per jar of $2.60 and a blackberry marmalade with a selling price of $5.95 and a variable cost per jar of $2.50. Sandhill's expected sales are 1200 jars of pepper reli...
1 answer
Help on these two questions please! 0.975 MITF a: the lifeti оро- 9.34 S 20 Consider...
help on these two questions please! 0.975 MITF a: the lifeti оро- 9.34 S 20 Consider the system shown in the accompa- ng figure. The reliability of each component is ovided in the figure. Assuming that the compo- onts operate independently, calculate the system cycles o 5 of the...
1 answer
If the equilibrium constant for a reaction is >1, reactants are more prominent at equilibrium. O...
If the equilibrium constant for a reaction is >1, reactants are more prominent at equilibrium. O True O False Question 2 1 pts In your own words, explain how Transition lenses are an example of Le Chatelier's principle. In your answer, address: a. What is being added or removed? b. Is it a pr...
1 answer
I need one menu (which are breakfast,lunch,dinner) for a VEGAN and LACTOSE and NUT ALLERGIES for...
I need one menu (which are breakfast,lunch,dinner) for a VEGAN and LACTOSE and NUT ALLERGIES for 6 years old child with recipes : One menu(breakfast,lunch,dinner) with recipes is for a vegan 6 year old child One menu(breakfast,lunch,dinner) with recipes for a 6 year old child with lactose intoleranc...
1 answer
In the lab of determining the peroxide w/v with KMnO4- What would be the effect on your results if: 1) Due to some error...
In the lab of determining the peroxide w/v with KMnO4- What would be the effect on your results if: 1) Due to some error that occurred during KMnO4 standardization, the KMnO4 concentration you used for your calculations was higher than that actually used in the titration? 2)The amount of water that ...
1 answer
(The following information applies to the questions displayed below.) Greg's Bicycle Shop has the following transactions...
(The following information applies to the questions displayed below.) Greg's Bicycle Shop has the following transactions related to its top-selling Mongoose mountain bike for the month of March Greg's Bicycle Shop uses a periodic inventory system. Units Cost per Unit $225 Total Cost $ 4,500 ...