Also what is the market value of preferred stock, the book value weight of commo
ID: 2801657 • Letter: A
Question
Also what is the market value of preferred stock, the book value weight of common stock and the market value weight of the retained earnings? If we accept the following balance sheet and costs of capital for Teara, Inc., a medical technology firm, what are the weighted costs for each component of the capital structure and what is the after-tax weighted average cost of capital at market value for the firm? Round to nearest decimals as follows: i.e. .0146 " 1.5%, .0164-1.6% S 5,000 Cash Accounts Receivable Inventory Net Plant, Property and Equipment 7,000 903,000 $4,915,000 S 4,000 Total Assets Accounts Payable Accrued Wages Bonds 9,000 000,000 $ 1,013,000 Total Debt Preferred Stock (594) Common Stock Retained Earnings S 500,000 1,102,000 2.300,000 $ 3,902,000 Total Equity Total Debt and Equity $4,915,000 1,000 bonds were issued and are currently selling at 120 The 5,000 shares of S100 Par Value Preferred Stock is currently selling at $110 per share. The 1,102,000 shares of Common Stock are currently selling at $25.00 per share. Market values and book or historical values are thus not the same. slod en ornae The after tax costs of capital for the firm are as follows: Cost of Bonds-6% Cost ofPreferred Stock» 5.5% Cost ofcommon Stock 12.8% Cost of Retained Earnings = 12.0% 15. What is the total market value of the firm's bonds? a. S940,000 b. S1,200,000 c. $1,000,000 d Cannot be determined from the information provided e. None of the answers provided is correctExplanation / Answer
total market value of firm bonds
1000000*120%
1200000
Market value of preferred stock
5000*110
550000
source
book value
weight = value/total
debt
1000000
0.2039984
preferred
500000
0.1019992
common stock
1102000
0.2248062
retained earning
2300000
0.4691962
total
4902000
Book value weight of common stock
0.2248062
source
market value
weight = value/total
debt
1200000
0.0379747
preferred
550000
0.0174051
common stock
27550000
0.8718354
retained earning
2300000
0.0727848
total
31600000
market value weight of retained earning
0.0727848
source
market value
weight = value/total
cost
weight*cost
debt
1200000
0.0379747
6
0.227848
preferred
550000
0.0174051
5.5
0.095728
common stock
27550000
0.8718354
12.8
11.15949
retained earning
2300000
0.0727848
12
0.873418
total
31600000
weighted average cost of capital using market value weight
12.35649
total market value of firm bonds
1000000*120%
1200000
Market value of preferred stock
5000*110
550000
source
book value
weight = value/total
debt
1000000
0.2039984
preferred
500000
0.1019992
common stock
1102000
0.2248062
retained earning
2300000
0.4691962
total
4902000
Book value weight of common stock
0.2248062
source
market value
weight = value/total
debt
1200000
0.0379747
preferred
550000
0.0174051
common stock
27550000
0.8718354
retained earning
2300000
0.0727848
total
31600000
market value weight of retained earning
0.0727848
source
market value
weight = value/total
cost
weight*cost
debt
1200000
0.0379747
6
0.227848
preferred
550000
0.0174051
5.5
0.095728
common stock
27550000
0.8718354
12.8
11.15949
retained earning
2300000
0.0727848
12
0.873418
total
31600000
weighted average cost of capital using market value weight
12.35649
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