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Mashutka [201]
3 years ago
11

Phillips equipment has 75,000 bonds outstanding that are selling at par. bonds with similar characteristics are yielding 7.5 per

cent. the company also has 750,000 shares of 6 percent preferred stock and 2.5 million shares of common stock outstanding. the preferred stock sells for $64a share. the common stock has a beta of 1.21 and sells for $44 a share. the u.s. treasury bill is yielding 2.3 percent and the return on the market is 11.2 percent. the corporate tax rate is 34 percent. what is the firm's weighted average cost of capital
Business
1 answer:
Basile [38]3 years ago
7 0

Bonds = 75,000*1000 = 75 Million

Preferred stock = 750,000*64 = 48 Million

Common stock = 2.5 Million *44 =110 Million

Total capital = 75+48+110 = 233 Million

Weight of debt (Wd) = 75/233 = 0.3219

Weight of preferred stock (Wp)= 78/233 = 0.206

Weight of equity (We) 1-0.3219-0.206 = 0.4721

Cost of debt after tax (Rd)= 7.5%*(1-0.34) = 4.95%

Cost of preferred stock (Rp)=6/64 = 9.375%

Cost of equity(Re) = rf + beta*(rm-rf) = 2.3+1.21*(11.2-2.3) = 13.069%

WACC = Wd *Rd + Wp*Rp + We*Re

WACC = 0.3219*4.95 + 0.206*9.375 + 0.4721*13.069% = 9.69%

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Answer:

$114,100

Explanation:

Data provided:

corporation's net operating income = $11,500

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on substituting the respective values, we get

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on substituting the respective values, we get

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A current liability is a financial obligation due within one year (or one normal operation cycle).

So a financial obligation that has a due date that exceeds a company´s operating cycle should have been directly classified as a long term liability (or a non current liability) in the first place. It simply is not a current liability that is changed into a long term liability, it always was a long term liability.

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