Heavy Duty Zippers Inc., a manufacturer of girdles and other fine intimate apparel products, wants to determine its WACC today 6/15/2009. The firm issued 5000 bonds that mature in 20 years with $1,000 face value. These bonds pay an 8% coupon rate semiannually and are currently selling for $908. The firm has 50K preferred shares of stock outstanding with a book value of $30, but currently selling for $40 per share. The last (paid yesterday) preferred and common dividend payments were $3 and $1.5 per share respectively. The firm's EPS five years ago was $4 and the firm expects to increase its next dividend payment by the implied 5-year EPS growth rate. Flotation costs on debt and preferred equity (D&P) are both 1%, but 5% of the selling price in the case of common stocks. The common stock is selling today for $35 and the firm's tax rate and payout ratio are 35% and 30%. The firm has 80K shares of common stock outstanding with the same book value as that of its preferred stock. a) Calculate the book value and market value weights for each source of capital. b) Calculate the component costs of capital (Including flotation costs) for common equity, preferred equity, and debt. c) Determine the weighted average costs of capital using both the market and the book value weights.
Heavy Duty Zippers Inc., a manufacturer of girdles and other fine intimate apparel products, wants to determine its WACC today 6/15/2009. The firm issued 5000 bonds that mature in 20 years with $1,000 face value. These bonds pay an 8% coupon rate semiannually and are currently selling for $908. The firm has 50K preferred shares of stock outstanding with a book value of $30, but currently selling for $40 per share. The last (paid yesterday) preferred and common dividend payments were $3 and $1.5 per share respectively. The firm's EPS five years ago was $4 and the firm expects to increase its next dividend payment by the implied 5-year EPS growth rate. Flotation costs on debt and preferred equity (D&P) are both 1%, but 5% of the selling price in the case of common stocks. The common stock is selling today for $35 and the firm's tax rate and payout ratio are 35% and 30%. The firm has 80K shares of common stock outstanding with the same book value as that of its preferred stock. a) Calculate the book value and market value weights for each source of capital. b) Calculate the component costs of capital (Including flotation costs) for common equity, preferred equity, and debt. c) Determine the weighted average costs of capital using both the market and the book value weights.
Related questions
Consider the following information for Evenflow Power Co.,
| Debt: | 4,500 7.5percent coupon bonds outstanding, $1,000 par value, 21 years tomaturity, selling for 105 percent of par; the bonds make semiannualpayments. | ||
| Common stock: | 99,000 sharesoutstanding, selling for $60 per share; the beta is 1.07. | ||
| Preferred stock: | 13,000 shares of7 percent preferred stock outstanding, currently selling for $107per share. | ||
| Market: | 9 percent marketrisk premium and 6.5 percent risk-free rate. | ||
| Assume thecompany's tax rate is 34 percent. |
| Required: |
Find the WACC
[The following information applies to the questionsdisplayed below.]
Raphael Corporationâs common stock is currently selling on astock exchange at $191 per share, and its current balance sheetshows the following stockholdersâ equity section: |
| Preferred stockâ5% cumulative, $___ par value, 1,000shares authorized, issued, and outstanding | $ | 55,000 |
| Common stockâ$___ par value, 4,000 shares authorized,issued, and outstanding | 140,000 | |
| Retained earnings | 370,000 | |
| Total stockholders' equity | $ | 565,000 |
1. What is the current market value (price) ofthis corporationâs common stock?
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2. What are the par values of the corporation'spreferred stock and its common stock?
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3. If no dividends are in arrears, what are thebook values per share of the preferred stock and the commonstock?
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4. If two years' preferred dividends are inarrears, what are the book values per share of the preferred stockand the common stock?
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5. If two yearsâ preferred dividends are inarrears and the preferred stock is callable at $65 per share, whatare the book values per share of the preferred stock and the commonstock?
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6.1 If two yearsâ preferred dividends are inarrears and the board of directors declares cash dividends of$17,900, what total amount will be paid to the preferred and to thecommon shareholders?
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