Peyton’s Colt Farm issued a 30-year, 7.0 percent semiannual bond 6 years ago. The bond currently sells for 90.0 percent of its face value. The company’s tax rate is 38 percent. The book value of the debt issue is $98 million. In addition, the company has a second debt issue, a zero coupon bond with 9 years left to maturity; the book value of this issue is $68 million, and it sells for 56.5 percent of par.
Requirement 1:
What is the total book value of debt? (Do not include the dollar sign ($). Enter your answer in dollars, not millions of dollars (e.g., 1,234,567).)
Total book value of debt $
Requirement 2:
What is the total market value of debt? (Do not include the dollar sign ($). Enter your answer in dollars, not millions of dollars (e.g., 1,234,567).)
Total market value $
Requirement 3:
What is the aftertax cost of debt? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)
Aftertax cost of debt %
You are given the following information concerning Parrothead Enterprises:
Debt: 10,000 7.0 percent coupon bonds outstanding, with 25 years to maturity and a quoted price of 106.50. These bonds pay interest semiannually.
Common stock: 275,000 shares of common stock selling for $65.50 per share. The stock has a beta of 0.95 and will pay a dividend of $3.70 next year. The dividend is expected to grow by 5.0 percent per year indefinitely.
Preferred stock: 9,000 shares of 4.50 percent preferred stock selling at $95.0 per share.
Market: A 11.0 percent expected return, a 5.0 percent risk-free rate, and a 35 percent tax rate.
Required:
Calculate the WACC for Parrothead Enterprises. (Do not include the percent sign ($). Round your answer to 2 decimal places (e.g., 32.16).)
WACC %
Requirement 1:
What is the total book value of debt? (Do not include the dollar sign ($). Enter your answer in dollars, not millions of dollars (e.g., 1,234,567).)
Total book value of debt $
Requirement 2:
What is the total market value of debt? (Do not include the dollar sign ($). Enter your answer in dollars, not millions of dollars (e.g., 1,234,567).)
Total market value $
Requirement 3:
What is the aftertax cost of debt? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)
Aftertax cost of debt %
You are given the following information concerning Parrothead Enterprises:
Debt: 10,000 7.0 percent coupon bonds outstanding, with 25 years to maturity and a quoted price of 106.50. These bonds pay interest semiannually.
Common stock: 275,000 shares of common stock selling for $65.50 per share. The stock has a beta of 0.95 and will pay a dividend of $3.70 next year. The dividend is expected to grow by 5.0 percent per year indefinitely.
Preferred stock: 9,000 shares of 4.50 percent preferred stock selling at $95.0 per share.
Market: A 11.0 percent expected return, a 5.0 percent risk-free rate, and a 35 percent tax rate.
Required:
Calculate the WACC for Parrothead Enterprises. (Do not include the percent sign ($). Round your answer to 2 decimal places (e.g., 32.16).)
WACC %
