On 1 May, 2021, Wishful Inc. presents its capital structure on its Balance Sheet Statement, as...

 

Transcribed Image Text:

On 1 May, 2021, Wishful Inc. presents its capital structure on its Balance Sheet Statement, as follow. Capital Bank loan Bonds Common stocks Preferred stocks Total Amount () 75,000 150,000 1,400,000 Additional information: 1. The bank loan has an interest rate of 9% 375,000 2,000,000 2. Currently, the bonds market price is 165,000, and the YTM is 11% 3. Last year dividend is 2 per share, and the estimated growth rate is 5% 4. Current market price of the common stocks is 14 per share. 5. The dividend of preferred stocks is 56,250 yearly 6. Marginal tax is 30% Required: a. Calculate the cost of bank loan! (5 marks) b. Calculate the cost of company bonds! (5 marks) c. Calculate the cost of common stocks! (5 marks) d. Calculate the cost of preferred stocks! (5 marks) e. If the market value proportion of bank loan, bonds, common stocks, and preferred stocks is 3.75%, 10%, 70%, 18.25%, respectively, what is the weighted average cost of capital (WACC) of Wishful, Inc? (10 marks) f. For what purpose companies use their WACCs for? (5 marks) On 1 May, 2021, Wishful Inc. presents its capital structure on its Balance Sheet Statement, as follow. Capital Bank loan Bonds Common stocks Preferred stocks Total Amount () 75,000 150,000 1,400,000 Additional information: 1. The bank loan has an interest rate of 9% 375,000 2,000,000 2. Currently, the bonds market price is 165,000, and the YTM is 11% 3. Last year dividend is 2 per share, and the estimated growth rate is 5% 4. Current market price of the common stocks is 14 per share. 5. The dividend of preferred stocks is 56,250 yearly 6. Marginal tax is 30% Required: a. Calculate the cost of bank loan! (5 marks) b. Calculate the cost of company bonds! (5 marks) c. Calculate the cost of common stocks! (5 marks) d. Calculate the cost of preferred stocks! (5 marks) e. If the market value proportion of bank loan, bonds, common stocks, and preferred stocks is 3.75%, 10%, 70%, 18.25%, respectively, what is the weighted average cost of capital (WACC) of Wishful, Inc? (10 marks) f. For what purpose companies use their WACCs for? (5 marks)

Answer rating: 100% (QA)

Answer e So the ... View the full answer