Blake Media is considering expanding into a new market. The upfront cost will be $10,000,000. It is expected that the new market will have revenue of $1,500,000 in year 1; $2,500,000 in years 2 and 3; $3,000,000 in years 4 and 5; and $2,000,000 in year 6. They have asked you to calculate their WACC for evaluating this project and then providing them with some professional advice on whether or not they should undertake this expansion.

Blake Media currently has the following Capital Information:

Blake Media has 150,000 outstanding shares of common stock at a market price of $110 per share. The firm’s 10,000 shares of $100 par value 7% preferred stock are currently priced at $105 per share. Blake also has 10,000 outstanding 10-year semi-annual bonds currently priced at 95 with a coupon rate on those bonds of 6%. Blake recently paid a dividend on its common stock of $8,00/share which is expected to grow at a constant rate of 6%. Blake Media stock has a Beta of 1.2. The risk-free rate is 5% and the market risk premium is 8.4%. If Blake were to issue new shares of common or preferred stock, they would have flotation costs of 6%. Blake Media is located in the United States and pays the current corporate tax rate of 21%.

What is the total current value of the Debt?

What is the current cumulative value of the Debt and Equity?

Answer rating: 100% (QA)

SOLUTION To calculate the total current value of the debt we need to consider both the preferred stock and the bonds 1 Preferred Stock The market price of preferred stock is given as 105 per share and ... View the full answer