For Problems 9 thru 17, examine the Little Chico Distillery (LCD) balance sheet.

Question

For Problems 9 thru 17, examine the Little Chico Distillery (LCD) balance sheet. Common stock Is currently trading at $80 per share. Preferred stock pays a dividend of 4% (no growth). The preferred stock has a val today of $320. The beta of the common stock is 2.2. Market risk premium is 8% and T bills are presently earning 4%. The firm's tax rate is 40% What is the current market price for the company's bonds? $870 $1,000 $1,168 $1,110 What was the stock's issue price? $10 $25 $40 $66 How many shares of common stock does LCD have outstanding? 1,000,000 40,000 400,000 500,000 How many shares of preferred stock docs LCD have outstanding? 1,000,000 50,000 100,000 500,000 Using current market values, what percentage of LCD is debt financed? 40.0% 37.8% 536% 33.1%

Explanation / Answer

9) Calculation of current price of company s' bond

1168

10) Stocks issue price was 10+((6000000/4000000)*10)=25

11)No Of shares outstanding=4000000/10 i.e 400000

12) No of preferred shares outstanding =5000000/100 i.e 50000

13)33.%

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