Firm A, established 10 years ago issued 20,000 bonds at face value for a maturity of 30
Question:
Firm A, established 10 years ago issued 20,000 bonds at face value for a maturity of 30 years at 10 percent coupon rate. Today, same bonds has a market return of rd= 16 percent.
Again, same firm issued 6 million shares of common stock 10 years ago at a price of $40 when return on equity (re) was equal to 16 percent, as stated by the board, these shares will par a dividend of Div1= $6 and grow at a rate of g=%5 constantly. Today, same shares has a market return of re= 20 percent.
a-) Calculate the Weighted Average Cost of Firm A on the day of establishment.
b-) Calculate the Firm Value of A today.
c-) Calculate the Weighted Average Cost of Firm A today.
Governmental and Nonprofit Accounting
ISBN: 978-0132751261
10th edition
Authors: Robert Freeman, Craig Shoulders, Gregory Allison, Robert Smi