Most recent annual common dividend $4 00 Todays common stock price $50 00 U S Treasury 10y annual rate 3 percent Market risk premium 5 percent Equity Risk Premium on Bond Yield 10 percent Number of common shares outstanding 2 5 million Todays preferred stock price $100 00 Fixed preferred dividend $...

Amount of the next dividend 1224 Current debt 200000000 Cost of preferred stock in percentage 860 Pr ...

Most recent annual common dividend $4.00 Todays common stock price $50.00 U.S. Treasury 10y annual rate 3

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Question:

Most recent annual common dividend $4.00
Today’s common stock price $50.00
U.S. Treasury 10y annual rate 3 percent
Market risk premium 5 percent
Equity Risk Premium on Bond Yield 10 percent
Number of common shares outstanding 2.5 million
Today’s preferred stock price $100.00
Fixed preferred dividend $8.00
Constant growth rate 6 percent
Beta β 2.0
Floatation costs for Preferred stock issuance 7 percent
Market price of the bond $1,100.00
Annual coupon on the bond $70.00
Years to bond maturity 5 years
Par value bond $1,000
Number of preferred shares outstanding 200,000
Number of bonds outstanding 200,000
Income Statement (amounts in millions)
Sales $200,000
Variable operating costs (60% of sales) (120,000)
Gross profit 80,000
Fixed operating costs (40,000)
Net operating income (EBIT) 40,000
Interest expense (10,000)
Taxable income 30,000
Taxes (12,000)
Net income $18,000
Company can raise more debt by selling 50,000 new bonds at the same rate (interest) and receiving the market price of the bond i.e. $1,100. The outstanding 200,000 bonds and the additional 50,000 is the maximum the company can raise in debt. After this amount, the average after tax cost of debt will be increased by 1 percent.
In the upcoming annual financial results, the company expects to generate 75 million dollars in retained earnings for the capital budgeting projects. Any requirement of funds beyond this would require issuance of new stock at the market price of $50 per share while maintaining the existing capital structure.
Company has following projects for consideration
Projects Investment Expected MIRR
A $50 million 13 percent
B $60 million 10 percent
C $100 million 8 percent
D $10 million 7.5 percent
1. What is the amount of the next dividend?
1. The company’s amount of current debt is:
1. The company’s cost of preferred stock in percentage is:
1. What is the proportion of debt to the overall capital?
1. The rate of return on company’s equity using the Dividend Discount Model is:
1. The cost of debt at the current market price is:
1. What is the after tax cost of debt?
1. The effective tax rate for the company is:
1. The amount of capital provided by preferred equity owners is:
1. The weight of preferred equity in the company’s capital structure is:
1. What is the amount of total equity capital provided by common shareholders?
1. What is the common stock proportion in the company’s total capital?
1. The cost of common equity using the Capital Asset Pricing Model is:
1. The Bond Plus Yield Method would result in the following rate of return:
1. What is the equity risk premium calculated by the Capital Asset Pricing Model?
1. At what level is the first break point in capital structure caused by Debt?
1. What is average cost of company’s common equity?
1. What is the Weighted Average Cost of Capital?
1. If the projects’ given estimated MIRR turns to be true, then which projects can be taken:
1. without raising any more capital?
2. without raising any equity capital?
3. Without raising any debt capital?