wacc problem set


wacc problem set

Instructions:<br /> <br /> FIN 310 Cost of Capital problem set due December 1 by 12:00 noon<br /> Show your solutions in an excel spreadsheet. Check all of your answers by hand before<br /> you turn in your work via Blackboard. Bring a copy to class to review<br /> 1. Ingram Barge Co. has a stock beta of 1.10, common equity (book value) of $250<br /> million, and a market capitalization of $625 million. IBCs debt consists of $250 million<br /> face value of 7.0 percent coupon bonds currently selling for 104.0% of par with a YTM of<br /> 6.515%. IBC also has 5 million shares of preferred stock: the preferred stock pays a $2.25<br /> annual dividend and the market price is $45. The risk free rate is 1.50 percent, the risk<br /> premium on market portfolio is expected to be 7.0 percent, and the tax rate for IBC is<br /> 34%.<br /> Determine the WACC for Ingram Barge Co. Show all work.<br /> 2. Pasco Power Co. has an estimated beta of 0.88 on their common stock. Pasco Power<br /> has 45 million shares outstanding with a par value of $1 per share. Together with the<br /> other related accounts, including $220 million in retained earnings, total shareholders’<br /> equity equals $315 million. The current stock price is $26.61 per share. Pasco Power has<br /> $400 million (book value) in long term debt consisting of 6.55% semi-annual coupon<br /> bonds that have 24 years until maturity and are quoted at 108% of par. There are no other<br /> sources of capital. Tax rate = 25%.<br /> a) compute the market value weights of the firm’s capital structure: WD and WE.<br /> b) compute the book value debt-to-equity ratio for Pasco Power<br /> c) compute the market value debt-to-equity ratio for Pasco Power<br /> d) compute the Market-to-Book value ratio on Pasco Power common stock.<br /> 3. Compute the WACC given the following information for FiberBass, Inc. using market<br /> value weights and returns based on the following data:<br /> Shares outstanding = 195 million<br /> Price of common stock = $35.65<br /> Book value of debt = $600 million<br /> Book value of equity = $115 million<br /> Market price of bonds = 105.85, November 2021<br /> Coupon rate on outstanding bonds = 6.525%<br /> Yield on 10-year Treasury notes (Rf) = 1.50%<br /> Expected return on Market Portfolio (Rm) = 9.0%<br /> Equity beta = 1.25; Tax rate = 34%

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