COST OF CAPITAL exercises 2.docx - EXERCICES on Cost of Capital 1 PM Company has the following capital structure stated in book value terms Source of

COST OF CAPITAL exercises 2.docx - EXERCICES on Cost of...

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EXERCICES on Cost of Capital: 1. PM Company has the following capital structure stated in book value terms: Source of Capital RM Bonds (RM1,000 par, 7% coupon) 4,000,000 Preferred stock (RM20 par) 500,000 Common stock (200,000 shares outstanding at RM1 par) 200,000 The firm's bonds are currently selling for RM900 per bond, the preferred stock for RM16 per share, and the common stock for RM19 a share. i) What is the market value of each source of capital and the current total value of the firm (total financing needed based on market value)? ii) What is the proportion of debt in this firm’s capital structure? iii) What is the proportion of preferred stock in this firm’s capital structure? iv) What is the proportion of common stock in this firm’s capital structure? 2. Aulia Bhd has the following capital structure:
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Unformatted text preview: Debt 5000 bonds that pays 10 percent annual coupon has a before-tax yield to maturity of 12 percent. The bond currently sell for RM980 with RM1000 par value. Commo n stock 60,000 shares outstanding currently selling for RM50 per share. The company has paid a RM6.50 dividend per share last year and experiencing 5 percent growth rate in dividends, which it expects to continue indefinitely. Preferre d stock 20,000 shares with RM5.00 dividend that sold for RM45 per share. The corporate tax rate is 24 percent. i. Calculate the weighted average cost of capital (WACC). ii. Given Project A’ internal rate of return (IRR) is 11 percent and project B’ IRR is 14 percent, which project should be selected? Why? Assume that this two projects have the same risk as the firm’s....
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  • Spring '16
  • Allan Mesina

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