Calculate the weighted average cost of capital of Regent. Regent Fireplaces Ltd. is establishing an appropriate
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Regent Fireplaces Ltd. is establishing an appropriate discount rate to apply to this year's investment projects. The controller has suggested the weighted average cost of capital (WACC) would be an appropriate rate and has gathered the following information as a start to finding the WACC: | ||||||||||||
Selected information from the December 31, 2022 Balance Sheet | ||||||||||||
Bonds | $20,000,000 | |||||||||||
Preferred shares (45,000 shares issued and outstanding) | 4,000,000 | |||||||||||
Common shares (5,000,000 shares issued and outstanding) | 10,000,000 | |||||||||||
Retained earnings | 16,000,000 | |||||||||||
Total | $50,000,000 | |||||||||||
The bonds, which have 15 years to maturity, have a coupon rate of 6.0% with interest paid semi-annually. Current market yields on similar bonds are currently 4.5%. Flotation costs would be 1.0% of the issue price. | ||||||||||||
The preferred shares with a fixed dividend $7.10 per share currently trade at $102.00 per share. Flotation expenses of a new issue of preferred would be $3.20 per share. | ||||||||||||
The common shares are currently trading at $8.00 per share. The most recent dividend was $0.12 per share with a projected annual growth rate of 10% annually. Flotation expenses would be $0.25 per share. | ||||||||||||
Regent's tax rate is 35%. All flotation costs are stated as after-tax. | ||||||||||||
Related Book For
Intermediate Financial Management
ISBN: 9780357516669
14th Edition
Authors: Eugene F Brigham, Phillip R Daves
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