SHOW WORK, STEPS AND ANSWERS PLEASE (for case study 1 and case study 2 as well (different questions))

Case Study 3 The following are the summary audited current year financial statements for JMJ, Inc. Income Statement (USD 000s) Balance Sheet (USD 000s) 1,000 400 200 Working capital Net fixed assets Total assets 200 1,800 2,000 400 Revenue Operating expense Depreciation EBIT Interest NIBT Tax @ 26.5% NIAT 800 100 60 340 90 250 Long-term debt Preferred stock Common equity Total capital 1,100 2,000 Market value information: Long-term debt consists of 800 7.5% coupon bonds, $1,000 par value, 10 years to maturity. The bonds are trading at a price of $1,100. Preferred stock consists of 1,000 $100 par value shares paying a 5% annual dividend.The stock is trading at $80 per share. Common stock consists of 25,000 $2 par value shares. The common shares are trading at $90 per share. The current year's common dividend was $5 per share. Common dividends will grow at a rate of 6% per year indefinitely. The company's beta is 2.0 Additional information: The average 5-year yield on US Government obligations is 3%. The market risk premium is 4%. As stated above, JMJ Inc.'s beta is 2.0 and, as noted on the income statement, its income tax rate is 26.5%. Required: Compute the firm's weighted average cost of capital on a market value basis, using the template that we used in class. (See Solution to Chapter 14, Problem no. 15 for the template.)