Dinklage Corp. has 9 million shares of common stock outstanding. The current sha
ID: 2784180 • Letter: D
Question
Dinklage Corp. has 9 million shares of common stock outstanding. The current share price is $81, and the book value per share is $8.
The company also has two bond issues outstanding. The first bond issue has a face value of $80 million, a yield to maturity of 10.45 percent, and sells for 96 percent of par. The second issue has a face value of $50 million, a yield to maturity of 10.26 percent, and sells for 104 percent of par. The first issue matures in 25 years, the second in 8 years.
Suppose the most recent dividend was $5.30 and the dividend growth rate is 5 percent. The tax rate is 35 percent. Calculate the company’s WACC.
Start by calculating the firm's market value.
(Enter your answer as a dollar amount, not millions of dollars, i.e. enter one million as 1,00,000)
Now calculate the firm's cost of equity and after-tax cost of debt.
(Enter your answers as percent rounded to two decimals. Assume the YTMs are quoted as an EAR, not an APR.)
Now calculate the WACC.
(Don't round your intermediate steps and enter your answer as a percent rounded to two decimals.)
Dinklage Corp. has 9 million shares of common stock outstanding. The current share price is $81, and the book value per share is $8.
The company also has two bond issues outstanding. The first bond issue has a face value of $80 million, a yield to maturity of 10.45 percent, and sells for 96 percent of par. The second issue has a face value of $50 million, a yield to maturity of 10.26 percent, and sells for 104 percent of par. The first issue matures in 25 years, the second in 8 years.
Suppose the most recent dividend was $5.30 and the dividend growth rate is 5 percent. The tax rate is 35 percent. Calculate the company’s WACC.
Explanation / Answer
Firms market value = 857,800,000
cost of equity = 11.87*
cost of debt = 6.74%
WACC = 11.10%
Market value weight cost weight*cost equity 729000000 0.8498 11.87% 0.1009 debt 76800000 0.0895 6.79% 0.0061 preferred share 52000000 0.0606 6.67% 0.00 total 857800000 11.10%Related Questions
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