Organic Produce Corporation has 8.6 million shares of common stock outstanding,

Question

Organic Produce Corporation has 8.6 million shares of common stock outstanding, 610.000 shares of 7.1 percent preferred stock outstanding, and 186.000 of 8.3 percent semiannual bonds outstanding, par value 51.000 each. The common stock currently sells for 565.10 per share and has a beta of 1.31, the preferred stock currently sells for 5106.90 per share. and the bonds have 16 years to maturity and sell for 90.5 percent of par. The market risk premium is 6.85 percent. T-bills are yielding 5.55 percent. and the firm's tax rate is 30 percent. Required: What is the firm's market value capital structure? (Do not round intermediate calculations. Round your answers to 4 decimal places (e.g.. 32.1616).) Market value weight of debt Market value weight of preferred stock Market value weight of equity What is the firm's cost of each form of financing? (Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g.. 32.16).) Menu cost of debt Cost of preferred stock Cost of equity If the firm is evaluating a new investment project that has the same risk as the firm's typical protect, what rate should the firm use to discount the project's cash flows? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) Weighted average cost of capital

Explanation / Answer

Description of Capital Cost Qunatity(Q) Price(P) Market Value of Weight(P*Q) Cost of Common Shares=Riskfree Rate*B(Risk Premium)=5.55+1.31*6.85 14.524 8600000 65.1 559860000 Preferred Share 7.1 610000 106.9 65209000 Bonds 5.929 186000 905 168330000 Bond's effective Rate=(1+0.0415)^2-1 0.0847 or 8.47% Bond's effective Rate after tax=(1-0.3)*8.47 5.929 Market Value Weight of Debt 168330000 Market Value Weight of preferred Stock 65209000 Market Value Weight of Common Stock 559860000 After Tax cost of debt 5.929 Cost of Preferred Shares 7.1 Cost of common Shares 14.525

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