You are given the following information concerning Parrothead Enterprises: Debt: 9,700 7.2 percent coupon bonds outstanding,...
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You are given the following information concerning Parrothead Enterprises: Debt: 9,700 7.2 percent coupon bonds outstanding, with 23 years to maturity and a quoted price of 105.75. These bonds pay interest semiannually. Common Stock: 260,000 shares of common stock selling for $65.20 per share. The stock has a beta of .97 and will pay a dividend of $3.40 next year. The dividend is expected to grow by 5.2 percent per year indefinitely. Preferred Stock: 8,700 shares of 4.6 percent preferred stock selling at $94.70 per share. Market: 11.3 percent expected return, risk-free rate of 3.95 percent, and a 22 percent tax rate. Input Area: Debt Bonds outstanding Annual coupon rate Settlement date Maturity date Bond price (% of par) Coupons per year Face value (% of par) Common stock Shares outstanding Share price Beta Dividend next year Dividend growth rate Preferred stock outstanding Shares outstanding Coupon rate Share price Market Market expected return Risk-free rate Tax rate $ $ $ 9,700 7.20% 01/01/00 01/01/23 105.75 2 100 260,000 65.20 0.97 3.40 5.20% 8,700 4.60% 94.70 11.30% 3.95% 22% <--This quoted price is not listed as a rate, but reporting at what percentage the bond price is of the par value <--This quoted price is not listed as a rate, but reporting at what percentage the redemption value is of the par value = Po = BE =D₁ = g = (RM) = (R₁) Complete the following analysis. Do not hard code values in your calculations. Leave the "Basis" input blank in the YIELD function. You must use the built-in Excel function to answer this question. Output Area: Market value of debt Market value of equity Market value of preferred Market value of firm Pretax cost of debt Aftertax cost of debt ? ? ? ? WACC ? ? Cost of equity - SML/CAPM? Cost of equity - DGM Cost of equity - Average Cost of preferred ? ? ? ? = (Bond Price (% of par)*10) * Bonds Outstanding = Shares outstanding of common stock * Share price = Shares outstanding of preferred stock * Share price = Total of all financing components (Total Assets = Total debt + Total equity + Total Preferred) <--Must be calculated using YIELD fx for credit cosideration <---Pretax cost of debt* (1-Tax rate) SML/CAPM = R₁ + BE * (RM - R₂) DGM D₁/Po + g <---Cost of Equity to use in WACC formula <---Rp = D/Po Hint: Par value of preferred stock has a stated value of $100. Calculate dividend payment based on the dividend % coupon rate = dividend % coupon rate*preferred stock par value Note: You will need to calculate Market Value weights for each component manually or within your WACC formula for this problem. You are given the following information concerning Parrothead Enterprises: Debt: 9,700 7.2 percent coupon bonds outstanding, with 23 years to maturity and a quoted price of 105.75. These bonds pay interest semiannually. Common Stock: 260,000 shares of common stock selling for $65.20 per share. The stock has a beta of .97 and will pay a dividend of $3.40 next year. The dividend is expected to grow by 5.2 percent per year indefinitely. Preferred Stock: 8,700 shares of 4.6 percent preferred stock selling at $94.70 per share. Market: 11.3 percent expected return, risk-free rate of 3.95 percent, and a 22 percent tax rate. Input Area: Debt Bonds outstanding Annual coupon rate Settlement date Maturity date Bond price (% of par) Coupons per year Face value (% of par) Common stock Shares outstanding Share price Beta Dividend next year Dividend growth rate Preferred stock outstanding Shares outstanding Coupon rate Share price Market Market expected return Risk-free rate Tax rate $ $ $ 9,700 7.20% 01/01/00 01/01/23 105.75 2 100 260,000 65.20 0.97 3.40 5.20% 8,700 4.60% 94.70 11.30% 3.95% 22% <--This quoted price is not listed as a rate, but reporting at what percentage the bond price is of the par value <--This quoted price is not listed as a rate, but reporting at what percentage the redemption value is of the par value = Po = BE =D₁ = g = (RM) = (R₁) Complete the following analysis. Do not hard code values in your calculations. Leave the "Basis" input blank in the YIELD function. You must use the built-in Excel function to answer this question. Output Area: Market value of debt Market value of equity Market value of preferred Market value of firm Pretax cost of debt Aftertax cost of debt ? ? ? ? WACC ? ? Cost of equity - SML/CAPM? Cost of equity - DGM Cost of equity - Average Cost of preferred ? ? ? ? = (Bond Price (% of par)*10) * Bonds Outstanding = Shares outstanding of common stock * Share price = Shares outstanding of preferred stock * Share price = Total of all financing components (Total Assets = Total debt + Total equity + Total Preferred) <--Must be calculated using YIELD fx for credit cosideration <---Pretax cost of debt* (1-Tax rate) SML/CAPM = R₁ + BE * (RM - R₂) DGM D₁/Po + g <---Cost of Equity to use in WACC formula <---Rp = D/Po Hint: Par value of preferred stock has a stated value of $100. Calculate dividend payment based on the dividend % coupon rate = dividend % coupon rate*preferred stock par value Note: You will need to calculate Market Value weights for each component manually or within your WACC formula for this problem.
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Related Book For
Essentials of Corporate Finance
ISBN: 978-1260013955
10th edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan
Posted Date:
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