A. 

1. Given the above information, what is the Market value of the firm's debt?
2. Given the above information, what is the Market value of the firm's equity?
3. Now calculate the weight of debt for the firm (Wd). You will use this to calculate the WACC.
4. Now calculate the weight of equity for the firm (Wce). You will use this to calculate the WACC.

 

B.

Calculate the cost of existing common equity (retained earnings)? Briefly describe your approach/method as well showing your work.

 

C.

Calculate the cost of NEW common equity? Briefly describe your approach/method as well showing your work.

 

D. 

Calculate is the firm's WACC using existing common equity? Briefly describe your approach/method as well showing your work.

Transcribed Image Text:

The cost of debt (ra) is 3.75% (before tax), Flotation costs (F) = 7% of issue price, The debt is trading at $1,022.00, There are 7,250 bonds outstanding, The tax rate is .32, The LAST dividend paid yesterday (Do) = $4.66, The expected constant growth rate (g) = 2.75%, Beta = 1.65, TRF = 1.04%, RPm = 4.75%, (market risk premium) The firm has 200,000 shares of common stock outstanding, Common stock shares are trading at $57.34/share (Po). The cost of debt (ra) is 3.75% (before tax), Flotation costs (F) = 7% of issue price, The debt is trading at $1,022.00, There are 7,250 bonds outstanding, The tax rate is .32, The LAST dividend paid yesterday (Do) = $4.66, The expected constant growth rate (g) = 2.75%, Beta = 1.65, TRF = 1.04%, RPm = 4.75%, (market risk premium) The firm has 200,000 shares of common stock outstanding, Common stock shares are trading at $57.34/share (Po).

Answer rating: 100% (QA)

A To calculate the market value of the firms debt we can use the following formula Market Value of D... View the full answer