Canadian Tire Corporation, Limited (Canadian Tire) is a family of companies that includes a retail segment...

 

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Canadian Tire Corporation, Limited (Canadian Tire) is a family of companies that includes a retail segment and a financial services division, among others. The retail business is led by Canadian Tire, which was founded in 1922 and provides Canadians with products for life in Canada across its Living, Playing, Fixing, Automotive and Seasonal categories. As noted in the Annual Report, the company was involved in a number of strategic initiatives in 2021, including: 1. Leading-edge technology initiatives such as their o Innovation centre in Waterloo, o Cloud computing centre in Winnipeg, and o Mobile wallet project. 2. They have also made significant investments (and will continue to do so) in productivity initiatives, streamlining the organizational structure and making a number of bold strategic marketing moves across each of our brands In all the company spent $404.0 million in 2021 on these initiatives. These initiatives required a multi-year commitment on the part of the Board of Directors as well as the senior management of Canadian Tire. As a result, the company plans to spend the same amount in 2022 on special projects. In all the company spent $404.0 million in 2021 on these initiatives. These initiatives required a multi-year commitment on the part of the Board of Directors as well as the senior management of Canadian Tire. As a result, the company plans to spend the same amount in 2022 on special projects. The company issued 2.6 million bonds, with a face value of $1,000 each. The bonds have a coupon rate of 10.0%, were issued at par and are payable semi-annually. The bonds have a 25 year maturity and were issued six years ago. The superior credit ratings being associated with the company have had a positive effect on the Yield-to-Maturity rates for Canadian Tire's debt. A $1,000 Canadian Tire bond has a nominal yield to maturity of 6.00% (an effective yield to maturity of 6.09%). As of December 31, 2021 the authorized capital of Canadian Tire consisted of 20 million preferred shares issued and outstanding and 75 million common shares issued and outstanding. The outstanding Common Shares and Preferred Shares of CTC are listed on the Toronto Stock Exchange ("TSX") and are traded under the symbols CTC and CTC.a, respectively. Preferred shares traded in a relatively narrow range in 2021 closing the year at $80.81 per share. Common shares traded in a higher range, closing 2021 at $100.85 per share. C. Calculate the after-tax cost of the various components of WACC 1. Bonds a. What is the nominal yield-to-maturity? b. What is the effective yield-to-maturity? c. Calculate the after-tax cost of new debt (using the effective yield-to-maturity). 2. Preferred shares: 3. Common equity in the form of retained earnings: 4. Common equity in the form of new shares: D. You now have enough information to calculate Weighted Average Cost of Capital. D. What is the Weighted Average Cost of Capital if: 1. The company uses new debt, new preferred shares and just retained earnings? 2. The company uses new debt, new preferred shares and new common shares? 13 Canadian Tire Corporation, Limited (Canadian Tire) is a family of companies that includes a retail segment and a financial services division, among others. The retail business is led by Canadian Tire, which was founded in 1922 and provides Canadians with products for life in Canada across its Living, Playing, Fixing, Automotive and Seasonal categories. As noted in the Annual Report, the company was involved in a number of strategic initiatives in 2021, including: 1. Leading-edge technology initiatives such as their o Innovation centre in Waterloo, o Cloud computing centre in Winnipeg, and o Mobile wallet project. 2. They have also made significant investments (and will continue to do so) in productivity initiatives, streamlining the organizational structure and making a number of bold strategic marketing moves across each of our brands In all the company spent $404.0 million in 2021 on these initiatives. These initiatives required a multi-year commitment on the part of the Board of Directors as well as the senior management of Canadian Tire. As a result, the company plans to spend the same amount in 2022 on special projects. In all the company spent $404.0 million in 2021 on these initiatives. These initiatives required a multi-year commitment on the part of the Board of Directors as well as the senior management of Canadian Tire. As a result, the company plans to spend the same amount in 2022 on special projects. The company issued 2.6 million bonds, with a face value of $1,000 each. The bonds have a coupon rate of 10.0%, were issued at par and are payable semi-annually. The bonds have a 25 year maturity and were issued six years ago. The superior credit ratings being associated with the company have had a positive effect on the Yield-to-Maturity rates for Canadian Tire's debt. A $1,000 Canadian Tire bond has a nominal yield to maturity of 6.00% (an effective yield to maturity of 6.09%). As of December 31, 2021 the authorized capital of Canadian Tire consisted of 20 million preferred shares issued and outstanding and 75 million common shares issued and outstanding. The outstanding Common Shares and Preferred Shares of CTC are listed on the Toronto Stock Exchange ("TSX") and are traded under the symbols CTC and CTC.a, respectively. Preferred shares traded in a relatively narrow range in 2021 closing the year at $80.81 per share. Common shares traded in a higher range, closing 2021 at $100.85 per share. C. Calculate the after-tax cost of the various components of WACC 1. Bonds a. What is the nominal yield-to-maturity? b. What is the effective yield-to-maturity? c. Calculate the after-tax cost of new debt (using the effective yield-to-maturity). 2. Preferred shares: 3. Common equity in the form of retained earnings: 4. Common equity in the form of new shares: D. You now have enough information to calculate Weighted Average Cost of Capital. D. What is the Weighted Average Cost of Capital if: 1. The company uses new debt, new preferred shares and just retained earnings? 2. The company uses new debt, new preferred shares and new common shares? 13

Answer rating: 100% (QA)

Detailed Explanation Answer A a Lets calculate the market values of the outstanding bonds based on the provided information Market Values 1 Market Value of Bonds The face value of each bond 1000 Numbe... View the full answer