Log in
Finance
1
answer
0
watching
112
views

The following Balance Sheet extract relates to the Snapple Company:

Bonds payable $1,000,000

Common Stock $3,000,000

Preferred Stock $2,000,000

Additional Information:

 The bonds are 8%, annual coupon bonds, with 9 years to maturity and are currently selling for 95% of par.

 The company’s common shares which have a book value of $25 per share are currently selling at $20 per share.

 The company has an equity beta of 1.5 and the current Treasury bill rate is 3.5%. The market risk premium is 1.5%

 The preferred dividends are 5% preferred shares with a book value of $100 per share. These shares are currently selling at $80 per share.

 The Company’s tax rate is 35%.

a) Calculate Snapple’s cost of debt. [5 marks]

b) Calculate Snapple’s cost of equity. [5 marks]

c) Calculate Snapple’s cost of preferred shares. [3 marks]

d) Calculate Snapple’s Weighted Average Cost of Capital [8 marks]

Watch
1
answer
0
watching
112
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Patrina Schowalter
Patrina SchowalterLv2
28 Sep 2019

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share

Related questions

Question 17 The following balance sheet extract relates to the ABC Company. Bonds Payable $1,200,000 Common Stock $3,000,000 Preferred Shares $1,550,000 Additional Information: i. The bonds are 8%, annual coupon bonds, with 9 years to maturity and are currently selling for 90% of par. ii. The company’s common shares which have a book value of $25 per share are currently selling at $22 per share. The beta on the company’s stock is 1.10 iii. Preferred shares have a book value of $100 per share. These shares are currently sellingat $115 per share and carries a coupon rate of 6%. iv. Market Risk premium is 6 % and 4% is the risk-free rate. v. The company’s Tax rate is 30% A. Required: Determine the following for the company

(a) Total Market value

(b) After-tax Cost of Debt

(c) Cost of Common Stock

(d) Cost of Preferred Stock

(e) WACC

B. What is the best proxy for the risk-free rate when using the CAPM to calculate the cost of equity? Explain the reasons for your answer.

Consider GRENLEC Power Co. which has the following information about its capital structures:


 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
 Common Stock - 150,000 shares outstanding, selling for $35 per share; the beta is 1.10
 Preferred Stock - 80,000 shares of 6 percent preferred stock outstanding, currently selling for
$95 per share
 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
ii. After-tax cost of Debt
iii. Cost of Equity
iv. Cost of Preferred Stock
v. Weighted Average Cost of Capital

6. Consider GRENLEC Power Co. which has the following information about its capital structures:

 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

 Common Stock - 150,000 shares outstanding, selling for $35 per share; the beta is 1.10

 Preferred Stock - 80,000 shares of 6 percent preferred stock outstanding, currently selling for $95 per share

 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)

Weekly leaderboard

Home
Homework Help 3,900,000
Finance 370,000
Start filling in the gaps now
Log in