6. Consider GRENLEC Power Co. which has the following information about its capital structures:
ï¼ Debt - 4,500 issues 6 percent coupon bonds outstanding, $1,000 par value, 7 years to maturity, selling for 93 percent of par, the bonds make semiannual payments
ï¼ Common Stock - 150,000 shares outstanding, selling for $35 per share; the beta is 1.10
ï¼ Preferred Stock - 80,000 shares of 6 percent preferred stock outstanding, currently selling for $95 per share
ï¼ Market Information - 6 percent market risk premium and 4 percent risk-free rate.
Required: Calculate to the following if the company has a tax rate of 36 percent.
i. Total Market Value for the Firm ( 3 points)
ii. After-tax cost of Debt (3 points)
iii. Cost of Equity (2 points)
iv. Cost of Preferred Stock (2 points)
v. Weighted Average Cost of Capital (3 points)
6. Consider GRENLEC Power Co. which has the following information about its capital structures:
ï¼ Debt - 4,500 issues 6 percent coupon bonds outstanding, $1,000 par value, 7 years to maturity, selling for 93 percent of par, the bonds make semiannual payments
ï¼ Common Stock - 150,000 shares outstanding, selling for $35 per share; the beta is 1.10
ï¼ Preferred Stock - 80,000 shares of 6 percent preferred stock outstanding, currently selling for $95 per share
ï¼ Market Information - 6 percent market risk premium and 4 percent risk-free rate.
Required: Calculate to the following if the company has a tax rate of 36 percent.
i. Total Market Value for the Firm ( 3 points)
ii. After-tax cost of Debt (3 points)
iii. Cost of Equity (2 points)
iv. Cost of Preferred Stock (2 points)
v. Weighted Average Cost of Capital (3 points)
Related questions
Merrill Lynch Limited has the following information and a tax rate of 30 percent. .
| Debt | 2,000, 6 percent coupon bonds outstanding, $1,000 par value, 12 years |
| to maturity, selling for 95 percent of par, the bonds make semi-annual | |
| payments | |
| Common stock | 250,000 shares outstanding, selling for $55 per share; the beta is 1.20 |
| Preferred stock | 12,000 shares of 6 percent preferred stock outstanding, currently selling |
| for $110 per share | |
| Market | 6 percent market risk premium and 4 percent risk-free rate |
Determine the companyâs WACC by computing the following:
Total Market value for the company. [no units and points] (4 points)
After-tax Cost of Debt. (Rounded to 3 decimal places) (2 points)
Cost of Common Stock (Rounded to 3 decimal places) (2 points)
Cost of Preferred Stock (Rounded to 3 decimal places) (2 points)
WACC (Rounded to 3 decimal places) (3 points)
