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FIN 370 Week 2 My Finance Lab

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Question;FIN 370 Week 2 MyFinanceLab;1). Templeton;Extended Care Facilities, Inc is considering the acquisition of a chain of;cemeteries for $390 million. Since the primary assets of this business is real;estate, Templeton's management has determined that they will be able to borrow;the majority of the money needed to buy the business. The current owners have;no debt financing but Templeton plans to borrow $280 million and invest only;$110 million in equity in the acquisition. What weights should Templeton use in;computing the WAAC for this acquisition?;a). The appropriate (W d) weight is _?;b). The appropriate (W cs) weight is _?;2). Compute the;cost of capital for the firm for the following;a). A bond that has a $1,000 par value (face value) and a;contract or coupon interest rate of 11.2%. The bonds have a current market;value of $1,127 and will mature in 10 years. The form's marginal tax rate is;34%.;b). A new common stock issue that paid a $1.76 dividend last;year. The firm's dividends are expected to continue to grow at 7.5% per year;forever. The price of the firm's common stock is now $27.27.;c). A preferred stock paying a 9.9% dividend on a $150 par;value.;d). A bond selling to yield 12.5% where the form's tax rate;is 34%.;3). Your firm is;considering a new investment proposal and would like to calculate its weighted;average cost of capital. To help in this, compute the cost of capital for the;firm for the following;a). A bond that has a $1,000 par value (face value) and a;contract or coupon interest rate of 12.2%. the bonds have a current market;value of $1,127 and will mature in 10 years. The firm's tax rate is 34%.;b. If the firm?s bonds are not frequently traded, how would;you go about determining a cost of debt for this company?;c. It is standard practice to estimate the cost of debt;using the yield to maturity on a portfolio of bonds with a similar credit;rating and maturity as the firm?s outstanding debt.;d). A preferred stock paying a 10.4% dividend on a $126 par;value. The preferred shares are currently selling for $150.92.

 

Paper#47582 | Written in 18-Jul-2015

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