May East Enterprises has 320,000 shares of common stock outstanding, currently selling for $57 per share....

 

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May East Enterprises has 320,000 shares of common stock outstanding, currently selling for $57 per share. The company just issued a dividend of $4, and the dividend is expected to grow at a constant 4.5% a year. The company also has 8,000 6.5% coupon bonds outstanding, $1,000 par value, 25 years to maturity, selling for 106% of par. The bonds make semiannual payments. Assume that May East's tax rate is 35%. a. b. c. d. What is the market value of equity? What is the market value of debt? What are the company's capital structure weights on a market value basis? Calculate the company's cost of equity and the cost of debt. Calculate the firm's weighted average cost of capital (WACC) based on market weights. May East Enterprises has 320,000 shares of common stock outstanding, currently selling for $57 per share. The company just issued a dividend of $4, and the dividend is expected to grow at a constant 4.5% a year. The company also has 8,000 6.5% coupon bonds outstanding, $1,000 par value, 25 years to maturity, selling for 106% of par. The bonds make semiannual payments. Assume that May East's tax rate is 35%. a. b. c. d. What is the market value of equity? What is the market value of debt? What are the company's capital structure weights on a market value basis? Calculate the company's cost of equity and the cost of debt. Calculate the firm's weighted average cost of capital (WACC) based on market weights.

Answer rating: 100% (QA)

a To calculate the market value of equity we multiply the number of shares of common stock outstanding by the current stock price Market value of equity Number of shares of common stock outstanding Cu... View the full answer