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(Answered) Calculations - measuring your firm's cost of capital.


Please see the attached file for full problem description.;---;You are responsible for measuring your firm's cost of capital. You have the following data.;Bond A Bond B;Coupon 4.00% 5.50%;Remaining Term 5 8;Existing Existing;New New;Market Price $925 $1,025;Flotation $0 $70;Amt Outstanding $400,000 $500,000;Tax Rate 34% 34%;Pref A: Pref B;Coupon 2.00% 3.50%;Par $25 $50;Remaining Term N/A N/A;New/Existing Existing New;Market Price $22.50 $55.00;Flotation $0 $8;Amt Outstanding $125,000 $175,000;Common Stock;New Existing;Par $10 $10;Market Price $37.00 $37.00;Flotation $3.00% $0.00%;Amt Outstanding $800,000 $200,000;EPS $4;Div Payout 60.00%;Growth 4.00%;Retained Earnings;$1,525,000 outstanding;Compute the component costs of capital and the firm's weighted average cost of capital.;(Please show all work).;2.;You are responsible for keeping track of the going concern values for your firm's securities. You have accumulated the following information.;From your balance sheet;BOND A Issued 3 yrs ago with an original term of 10 yrs. The bond carries a 8.25% coupon rate. Face value $700,000.;BOND B Issued 8 yrs ago with an original term of 10 yrs. The bond carries an 11.00% coupon rate. Face value $975,000.;PREF A 3.5% coupon rate. Par value is $25. Face value $60,000.;COMMON A You have outstanding at this time $500,000, par value $10. Growing at 2.00% annually and will pay annual dividends of 60.00% of earnings.;COMMON B You have outstanding at this time $100,000 of common B, par value of $1. This stock is non-voting and is subordinate to the A stock with respect to dividends. It is estimated to grow annually at a rate of $1.50%, paying 20.00% of earnings that are available after the A stock has been satisfied.;Your firm has Net Income After Tax of $375,000.;Since your firm has a AA credit rating, you have gathered the following competitive data.;Type of Security Credit Rating Competitive Yield;BONDS AAA 4.00%;BONDS AA 4.25%;BONDS BBB 5.00%;PREFERRED AA 4.00%;COMMON A AA 6.00%;COMMON B AA 6.50%;Calculate your aggregate value for the firm.;3.;Using the below balance sheets, prepare a complete analysis of the firm's financial position for the fiscal 2004, including cash flow statement.;ASSETS;Current 2004 2003;Cash 35,000 48,000;Accounts Receivable 80,000 65,000;Notes Receivable 20,000 25,000;Inventory 100,000 125,000;Total Current 235,000 263,000;Long Term;Plant & Equipment 265,000 250,000;Accum Deprec. (40,000) (34,000);Net Plant & Equipment 225,000 216,000;Land 300,000 240,000;TOTAL ASSETS 760,000 719,000;LIABILITIES;Total Current Liabilities 175,000 155,000;Total Long Term Debt 369,000 325,000;TOTAL DEBT 544,000 480,000;EQUITY;Common Stock 91,000 91,000;Retained Earnings 125,000 148,000;Total Equity 216,000 239,000;TOTAL LIABILITIES & EQUITY 760,000 719,000;INCOME DATA Sales 600,000 500,000;Cost of Goods sold 305,000 230,000;Fixed Cost 125,000 95,000;Interest Expense 20,000 16,000;N I A T 74,000 83,000;Industry Current Ratio 2.00 1.90;Data Acid Test Ratio 1.10 1.00;Average Collection Period days 31.00 35.00;Inventory Turnover times 5.20 5.00;Debt to Assets 75% 75%;Times Interest Earned times 6.00 5.00;Net Profit Margin 7.10% 6.80%;Earning Power 25.00% 23.00%;Return on Total Assets 10.00% 8.00%;Fixed Asset Turnover times 5.00 6.00;Return on Equity 14.00% 12.00%;Attachments;Assignment.doc
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Calculations - measuring your firm's cost of capital.

 


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