Organic Produce Corporation has 8.8 million shares of common stock outstanding,

Question

Organic Produce Corporation has 8.8 million shares of common stock outstanding, 630,000 shares of 7.3 percent preferred stock outstanding, and 188,000 of 8.5 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $65.30 per share and has a beta of 1.33, the preferred stock currently sells for $106.70 per share, and the bonds have 14 years to maturity and sell for 89.5 percent of par. The market risk premium is 6.95 percent, T-bills are yielding 5.65 percent, and the firm’s tax rate is 40 percent.

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 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).)

Cost of equity = ____%

If the firm is evaluating a new investment project that has the same risk as the firm’s typical project, 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 = ___%

Organic Produce Corporation has 8.8 million shares of common stock outstanding, 630,000 shares of 7.3 percent preferred stock outstanding, and 188,000 of 8.5 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $65.30 per share and has a beta of 1.33, the preferred stock currently sells for $106.70 per share, and the bonds have 14 years to maturity and sell for 89.5 percent of par. The market risk premium is 6.95 percent, T-bills are yielding 5.65 percent, and the firm’s tax rate is 40 percent.

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).)

Aftertax 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 project, 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

no of units market price market value Weights Equity 8800000 65.3 574640000 0.709326 preferred 630000 106.7 67221000 0.082976 debt 188000 895 168260000 0.207697 total market value 810121000 cost of preferred stock (preference dividend/market price)*100 6.841611996 cost of equity IRF + (RM- IRF)*beta 7.379 cost of debt [interest + (redemption value - market price/no of years to maturity / (redemption value +market price/2]*(1- tax rate 5.857519789 92.5 947.5 0.09762533 0.6 0.058575 5.85752 Weights rate Equity 0.709326138 7.379 5.2341176 preferred 0.082976494 6.841611996 0.567693 debt 0.207697369 5.857519789 1.2165914 Weighted average cost of capital 7.018402 percent

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.