PLEASE SHOW ALL WORK PART 1 1. Barton Hills Technology (BHT) is a mid-cap techno

Question

PLEASE SHOW ALL WORK

PART 1

1.  Barton Hills Technology (BHT) is a mid-cap technology company that was started in 2008 to produce microchips for the automotive industry. To capitalize their business, they have issued 12.4 million shares of common stock in the past three years and are currently trading on the NASDAQ exchange at $15.50 per share.

Calculate the equity market value of the company.

2.BHT has also issued 105,000 bonds over this same timeframe. Each bond was issued with a $1,000 face amount and a 20-year maturity.

What is the value of the debt portion of their capital structure?

3.  BHT is trying to determine what their cost of equity is today. The current risk-free rate of return is 3.05% and the beta is 1.55. It is generally agreed that the expected market rate of return in 7.50%.

Using the CAPM formula, what would be BHT’s cost of equity?

Explanation / Answer

1. Equity market value=number of shares*share price=12.4*15.5=192.2 million

2. Debt value=number of bonds*face value of each bond=105000*1000=105 million

3. Cost of equity=risk free+beta*(market return-risk free)=3.05%+1.55*(7.5%-3.05%)=9.9475%

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