1. Suppose the stock price is $25, there are 1.5 million shares of stock, the firm...

 

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1. Suppose the stock price is $25, there are 1.5 million shares of stock, the firm has $13.5 million of preferred stock, and $62 million of debt. Estimate a. The total value b. The WACC weights. i. Write the WACC formula with the corresponding weights. 2. Estimate the cost of debt. Assume that you are issuing a 10 yr, 6% semiannual bond that sells for $1,015.72. (Use the excel formula) a. Illustrate the before-tax cost of debt by showing the corresponding time line. b. If the tax rate is 40%, what is the after-tax cost of debt? c. What role do flotation costs play in the cost of debt? Explain. 3. Estimate the annual and quarterly cost of issuing preferred stock (use the cost of preferred stock formula studied in class). Assume the price of preferred stock is $104.35, 4% dividend, $100 par (face) value and flotation costs (F) of 5%. a. Draw the time line of preferred stock. Remember that dividends are paid quarterly. b. Make sure your result is correct by estimating the cost of issuing preferred stock using the corresponding excel formula. 4. Use the CAPM Cost of Equity model to determine the cost of issuing common stock. Assume that the risk free rate is 3.2%, the market risk premium is 4% and the estimate of beta is 0.98. a. Re write the WACC formula, substituting the values you have found in all the previous questions. b. What is the hurdle rate? What does it mean? Explain. 5. Define an agency relationship. a. If you are the only employee, and only your money is invested in the business, would any agency problems exist? Explain. b. Would hiring additional people create agency problems? Explain. c. Define the concept of Corporate Governance. 1. Suppose the stock price is $25, there are 1.5 million shares of stock, the firm has $13.5 million of preferred stock, and $62 million of debt. Estimate a. The total value b. The WACC weights. i. Write the WACC formula with the corresponding weights. 2. Estimate the cost of debt. Assume that you are issuing a 10 yr, 6% semiannual bond that sells for $1,015.72. (Use the excel formula) a. Illustrate the before-tax cost of debt by showing the corresponding time line. b. If the tax rate is 40%, what is the after-tax cost of debt? c. What role do flotation costs play in the cost of debt? Explain. 3. Estimate the annual and quarterly cost of issuing preferred stock (use the cost of preferred stock formula studied in class). Assume the price of preferred stock is $104.35, 4% dividend, $100 par (face) value and flotation costs (F) of 5%. a. Draw the time line of preferred stock. Remember that dividends are paid quarterly. b. Make sure your result is correct by estimating the cost of issuing preferred stock using the corresponding excel formula. 4. Use the CAPM Cost of Equity model to determine the cost of issuing common stock. Assume that the risk free rate is 3.2%, the market risk premium is 4% and the estimate of beta is 0.98. a. Re write the WACC formula, substituting the values you have found in all the previous questions. b. What is the hurdle rate? What does it mean? Explain. 5. Define an agency relationship. a. If you are the only employee, and only your money is invested in the business, would any agency problems exist? Explain. b. Would hiring additional people create agency problems? Explain. c. Define the concept of Corporate Governance.

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students name institution course title instructor due date The total value Total Value 25 x 15M 135M 62M 158M why The total value equals the value stock plus the value of the preferred stock plus the ... View the full answer