Cardinal Corporation stock sells for $20.They have 3,000,000 outstanding shares. Treasury bonds yield 4.5%. The market is
Question:
Cardinal Corporation stock sells for $20.They have 3,000,000 outstanding shares. Treasury bonds yield 4.5%. The market is expected to return 11.5%.Their bonds sell for $870. They have 10,000 outstanding bonds. They have 18 years till maturity. Their target debt ratio is 18%. Tax rate is 40%. Use 8% for cost of debt and 15% for cost of equity.
Liabilities and
Assets Owners' Equity
Current assets Current liabilities
Cash $300.00 Accounts payable $90.00
Accounts receivable $900.00 Notes payable $110.00
Inventory $500.00 Total $ 200.00
Total $1,700.00
Fixed assets
Net plant and
equipment $ 3,300.00 Long-term debt $1,000.00
Owners' equity
Common stock $600.00
Retained earnings $ 3,200.00
Total $ 3,800.00
Total assets $ 5,000.00 Total liabilities and $ 5,000.00
owners' equity
What is the weighted average cost of capital using book value?
What is the weighted average cost of capital using market value?
What is the weighted average cost of capital using target value?
Expert Answer:
To calculate the weighted average cost of capital WACC using book value market value and target value well first determine the cost of debt cost of eq... View the full answer
Introduction to Corporate Finance What Companies Do
ISBN: 978-1111222284
3rd edition
Authors: John Graham, Scott Smart
