Question: This question is from the Week 10 Tutorial) Osborne Construction currently has the following capital structure: Debt: $20,500,000 paying 9.5% coupon bonds outstanding with 15
This question is from the Week 10 Tutorial) Osborne Construction currently has the following capital structure: Debt: $20,500,000 paying 9.5% coupon bonds outstanding with 15 years to maturity, an annual before-tax yield to maturity of 8% on a new issue. The bonds currently sell for $1,125 per $1,000 face value. Ordinary Shares: 100,000 shares outstanding currently selling for $45 per share. The company just paid a $3.50 dividend per share and is experiencing a 5% growth rate in dividends, which it expects to continue indefinitely. (Note: The firm's marginal tax rate is 30%.) Required: a) Calculate the current total market value of the company. (1.5 marks) b) Calculate the capital structure of the company. (1 marks) c) Calculate the weighted average cost of capital (WACC) for the firm. (1.5 marks) d) Discuss the significance of calculating WACC for this company. (3 marks)
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