Crawford Enterprises is a publicly held company located in Arnold, Kansas. The firm began as a small

Question:

Crawford Enterprises is a publicly held company located in Arnold, Kansas. The firm began as a small tool and die shop but grew over its 35- year life to become a leading supplier of metal fabrication equipment used in the farm tractor industry. At the close of 2009 the firm€™s appeared as follows:

At present the firm€™s common stock is selling for a price equal to its book value, and the firm€™s bonds are selling at par. Crawford€™s managers estimate that the market requires a 15 percent return on its common stock, the firm€™s bonds command a yield to maturity of 8 percent, and the firm faces a tax rate of 34 percent.
a. What is Crawford€™s weighted average cost of capital?
b. If Crawford€™s stock price were to rise such that it sold at 1.5 times book value, causing the cost of equity to fall to 13 percent, what would the firm€™s cost of capital be (assuming the cost of debt and tax rate do not change)?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of... Cost Of Debt
The cost of debt is the effective interest rate a company pays on its debts. It’s the cost of debt, such as bonds and loans, among others. The cost of debt often refers to before-tax cost of debt, which is the company's cost of debt before taking... Cost Of Equity
The cost of equity is the return a company requires to decide if an investment meets capital return requirements. Firms often use it as a capital budgeting threshold for the required rate of return. A firm's cost of equity represents the... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...