MGFC10mt_Fall2013_solution.pdf - ANSWER 1 a Market value of common shares = 1,000,000(\$50 = \$50,000,000 D(1 g 6(1 0.02 rs 0 g 0.02 0.0976 9.76 P0 50 5

# MGFC10mt_Fall2013_solution.pdf - ANSWER 1 a Market value of...

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ANSWER 1: a. Market value of common shares = 1,000,000(\$50) = \$50,000,000 0 0 (1 ) 6(1 0.02) 0.02 0.0976 9.76% 50 s D g r g P 5 Market value of Bonds = \$40,000,000(111.46992%) = \$44,587,968 ( )/ 7 (100 111.46992)/ 20 0.060779 ( )/ 2 (100 111.46992)/ 2 C F P t YTM F P Try r B = 6% 20 20 1 1 1.06 100 \$111.46992 7 \$111.46992 0.06 1.06 5 Therefore r B = 6% Market value of preferred stock = 500,000(\$70) = \$35,000,000 3 Therefore r P = \$4.90/70 = 0.07 = 7% V = S + B + P = \$50,000,000 + 44,587,968 + 35,000,000 = \$129,587,968 S/V = 0.385838 B/V = 0.344075 P/V = 0.270087 (1 ) WACC S B c P S B P r r r T r V V V 6 = 0.385838(0.0976) + 0.344075(0.06)(1-0.40) + 0.270087(0.07) = 0.0689506 b. 1. (1 ) WACC S B c P S B P r r r T r V V V 1 2 0.10 0.15 (1 0.30) 3 3 0.107143 10.7143% B B r r 4 2. 1 2 0.10 0.12(1 0.30) 3 3 0.132 13.2% S S r r 2
ANSWER 2: a. , 2 0.028 1.4 0.02 EGWI m s m Cov 4 ) ) ( ( f m s f s r r E r r = 0.03+ 1.4 (0.08 0.03) = 0.10 = 10% 4 b. 10 1 1 1.10 100,000 0.4 0.3 1.015 \$100,000 40,000(1 0.4) 0.10 0.03 0.3 1.03 SS NPV   = -\$100,000 + 147,470 + 35,834 = \$83,304 5 5 5 5 1 1 1.10 40,000 0.4 0.3 1.015 40,000 35,000(1 0.4) 0.10 0.03

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• Fall '16
• SyedAhmed
• Market Value, Trigraph, rs, APV, Rb

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