# fm10 6 - Alternatively using a financial calculator input N...

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Answers and Solutions: 10 - 6 10-15 a. Common equity needed: 0.5(\$30,000,000) = \$15,000,000. b. Cost using r s : After-Tax Percent × Cost = Product Debt 0.50 4.8%* 2.4% Common equity 0.50 12.0 6.0 WACC = 8.4 % *8%(1 - T) = 8%(0.6) = 4.8%. c. r s and the WACC will increase due to the flotation costs of new equity. 10-16 The book and market value of the current liabilities are both \$10,000,000. The bonds have a value of V = \$60(PVIFA 10%,20 ) + \$1,000(PVIF 10%,20 ) = \$60([1/0.10]-[1/(0.1*(1+0.10) 20 )]) + \$1,000((1+0.10) -20 ) = \$60(8.5136) + \$1,000(0.1486) = \$510.82 + \$148.60 = \$659.42.
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Unformatted text preview: Alternatively, using a financial calculator, input N = 20, I = 10, PMT = 60, and FV = 1000 to arrive at a PV = \$659.46. The total market value of the long-term debt is 30,000(\$659.46) = \$19,783,800. There are 1 million shares of stock outstanding, and the stock sells for \$60 per share. Therefore, the market value of the equity is \$60,000,000. The market value capital structure is thus: Short-term debt \$10,000,000 11.14% Long-term debt 19,783,800 22.03 Common equity 60,000,000 66.83 \$89,783,800 100.00 %...
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