Question: i need solution asap Clearview Systems Ltd. (25 marks) Suppose you have been hired as a financial consultant to Clearview Systems Ltd. (CVL), a large,




i need solution asap
Clearview Systems Ltd. (25 marks) Suppose you have been hired as a financial consultant to Clearview Systems Ltd. (CVL"), a large, publicly traded firm that is the market share leader in radon detection systems (RDS). The company is looking at setting up a manufacturing plant overseas to produce a new line of RDSs. The project will require an investment of $6.0 million dollars and the president of the company wants to be sure she understands her cost of capital before going ahead with the decision. Market information for the latest year-end (Dec-31-19) is as follows: Debt Common Stock The company has issued 16,400 bonds, each with a par value of $1,000 and a coupon rate of 8.50 percent (payable semi- annually). The bonds were issued 5 years ago with a 25 year maturity. They are currently selling for $1,015.00 each. 421,000 common shares have been authorized (with 341,000 shares issued and outstanding). Common shares are selling for ||$60.000 per share. 134,000 preferred shares have been authorized (with 111,000 issued and outstanding). The closing price of preferred shares was $25.000 per share. Preferred Stock CVL uses G.M. Wharton as its lead underwriter. Wharton charges CVL 6.00 percent commission on new common stock issues, 6.00 percent on new preferred stock issues, and 4.00 percent on new debt issues. Wharton has included all direct and Cornurm OCT YOUCO, Usporeom Pn issues, and 4.00 percent on new debt issues. Wharton has included all direct and indirect flotation costs in these rates. The preferred shares were issued six years ago and pay an annual dividend of $2170 per share. Last year, CVL declared and paid a common share dividend of $1.100 per share. This represented a 5.00 percent growth in the common share dividend (a rate that is expected to continue into the future) and a dividend payout ratio of 40.00 percent (also expected to continue into the future). CVL's tax rate is 45.00 percent. Preliminary year-end results show net earnings (after interest, taxes and preferred share dividends) for the year ending Dec-31-19 is $4.0 million. Requirements: (enter all percentages to two decimal places) A. Use market values to calculate the weight of outstanding bonds, preferred and common shares, (enter your answer in whole numbers. e.g. 1,000,000 not 1.0 million Don't enter the dollar sign) 1. What is the total market value of outstanding bonds on Dec-31-19? $ 2. What is the total market value of all issued preferred shares on Dec-31- 19? $ 3. What is the total market value of all issued common shares on Dec-31- 19? $ 4. What weights are assigned to debt, preferred shares and common equity on Dec-31-19? (Note: I'm only looking for the weights here, not WACC.)? Weight % Description Debt Preferred Common Total % % B. Calculate the after-tax cost of debt: 1. If the par value of each bond is $1,000, what is the yield-to-maturity? % 2. The yield you calculated in part 1 is the nominal yield. Since the bonds compound semi-annually, what is the effective yield on the bond? % 3. Calculate the after-tax cost of debt using the effective yield. (Note: If you don't know how to calculate the effective yield, use the nominal yield you calculated in part 1. Show me you know how to calculate after-tax cost of debt, even if you're starting with the wrong number) % C. Calculate the after-tax cost of preferred shares. % D. Calculate the after-tax cost common equity in the form of retained earnings Kel OL D. Calculate the after-tax cost common equily in the form of retained earnings (ke). % E. Calculate the after-tax cost of common equity in the form of new shares (Kn). % F. The company needs to finance $6.0 million in new capital projects. How much of that can be funded without issuing new common stock? (enter your answer in whole numbers: eg. 1,000,000 not 1.0 million. Don't enter the dollar sign.) $ G. 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? %
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
