109304025 統計三 易子榆、109304042 統計三 戴佳珣
Assignmemt #4
A.
1. Ch14Q15
Cost of debt:
N=50, PMT=23, PV=-1050, FV=1000
=> I/Y=2.1363 => YTM=4.2726%=Rd
Cost of common stock:
Re = 3.2%+1.04*7% = 10.48%
Cost of preferred stock:
Rp = D1/P0 = 3.4/94 = 3.6%
V=12000*1050+575000*81+30000*94=61995000
WACC=12600/61995*0.79*4.2726+46575/61995*10.48+2820/61995*3.6=8.7231%
2. Ch14Q18
(a) Borrowing the entire amount means weighted average flotation cost will be
the same as the flotation cost of debt. So the cost will be minimal compared
to other debt-equity ratios.
(b) Wd=0.75/1.75=0.4286
Average flotation cost = 0.4286*2%+0.5714*6%=4.2856%
When D/E=0.75:
C0=initial cost/(1-average flotation cost)=43000000/0.957144=44,925,319.5
When all from debt:
C0=initial cost/(1-average flotation cost)=43000000/0.98=43,877,551
3. Ch15Q2(b)(c)
(b)
25,000,000/41 = 609,756.098
609,757 shares must be sold.
2,700,000/609,757 = 4.42
It takes 4.42 rights to buy one share.
(c)
1 for 4.42 at $41
Initial number of shares = 4.42
Initial value = $212.16
Post-offer number of shares = 5.42
Post-offer value = $253.16
Post-offer stock price = 253.16/5.42=$46.7085
The value of a right = 48-46.7085=$1.2915
4. Ch15Q3
Number of share for rights offering = 17,500,000/41 = 426,829
Assume the number of shares before the offering is x.
54.3*(x+426,829) = 56x + 17,500,000
23,176,814.7 - 17,500,000 = 1.7x
x = 5,676,814.7/1.7 = 3,339,303
There are 3,339.303 shares before the offering.
5. Ch16Q13
(a) because the company has no debt, cost of equity = WACC = 9.2%
(b) debt = 25%
D/E = 0.25/0.75 = 1/3
r_e = 9.2%+(9.2%-5.9%)*1/3*(1-21%) = 0.10069 =10.1%
(c) debt = 50%
D/E = 0.5/0.5 = 1
r_e = 9.2%+(9.2%-5.9%)*1*(1-21%) = 0.11807 = 11.8%
(d) In (b), WACC =5.9%*0.25*(1-21%)+10.1%*0.75 = 0.0117+0.0758= 8.75%
In (c),WACC=5.9%*0.5*(1-21%)+11.8%*0.5 = 0.0233+0.059=8.23%
6. Ch16Q16
V_L = V_U + PV of tax shield = EBIT(1-T_c)/R_U + T_c*D =
57,000*79%+21%*134,000 = 465,324.4660
In this scenario, value of the firm is greater as the ratio of D/E increase. So company
should change its debt-equity ratio, to debt 100%, equity 0% and maximize the value
of the firm.
B.
(a) cost of debt
N = 23*2 = 46, PV = -1,000*104.75% = -1,047.5, PMT = 85/2 = 42.5
->I/Y = 4.0218 ->YTM = r_d = 8.0435%
(b) required return on the preferred stock
r_p = D1/P0 = 2.5/32.25 = 0.0775 = 7.75%
(c) required return on common equity(CAPM)
r_e = r_f + b(r_m-r_f) = 1.9%+1.35*6% = 0.1 = 10%
(d) required return on common equity
r_e = D1/P0 + g = 1.2(1+12.5%)/43.5 + 7% = 1.35/43.5 + 7% = 0.3010 + 7% =
0.1010 = 10.1%
(e) weighted average cost of capital
WACC = 0.15*8.0435%*(1-40%) + 0.35*7.75% + 0.5*10% = 0.0072+0.0271+0.05 =
0.0843 = 8.43%