Dinklage Corp has 8 milion shares of common stock outstanding The curent share p
ID: 1176092 • Letter: D
Question
Dinklage Corp has 8 milion shares of common stock outstanding The curent share price is $74, and the book value per share is $5 The most recent annual dividend, paid this morning. was $4.60 and the dividend growth rate is 5 percent. The company also has two bond tssues outstanding. The first bond issue has a face value of $80 milion, a coupon rate of 9%, a yield to maturity of 9.53%, and sells for 95 percent of par. The second issue has a face value of $60 million, a coupon rate or 10%, a yield to maturity of 860%, and sels for 108 percent of par. The first issue matures in 24 years, the second in 8 years The tax rate s 35 percent Calculate the company's WACC Start by calculating the capital structure weights Do not round intermediate calculations. Enter your answer as a decimal rounded to 4 decimal places, eg 0 1617 Debt to Assets Equity to Assets Next, calculate the cost of equity and cost of debt to get the WACC Leave the cost of debt as an APR Do not round intermediate calculations ve use more than n four decimal places when using the capital structure weights above) Enter th tollowing answers as a percent rounded to 2 decimal places, eg 32 16 Cost of Equity After tax Cost of Debt WACC References eBook & Resources Worksheet pe here to searchExplanation / Answer
1-
source
no of units*market price
market value
Weight = market value/total value of firm
Market value of common stock
8000000*74
592000000
0.80786
market value of debt
(80000000*95%)+(60000000*108%)
140800000
0.19214
total value of firm
732800000
2-
cost of equity
(expected dividend/market price)+growth rate
(4.83/76)+5%
11.36%
expected dividend
current dividend*(1+growth rate)
4.6*1.05
4.83
after tax cost of debt
YTM*(1-tax rate)
9.53*(1-.35)
6.1945
after tax cost of debt
YTM*(1-tax rate)
8.6*(1-.35)
5.59
Weighted average cost of debt
Debt Option
market value
weight
cost
weight*cost
1
76000000
0.5397727
6.1945
3.34
2
64800000
0.4602273
5.59
2.572670455
total
140800000
weighted average cost of debt
5.92
WACC
source
market value
weight
cost
weight*cost
Debt
140800000
0.1921397
5.92
3.34
equity
592000000
0.8078603
11.36
9.177292576
total
732800000
weighted average cost of capital
12.52
1-
source
no of units*market price
market value
Weight = market value/total value of firm
Market value of common stock
8000000*74
592000000
0.80786
market value of debt
(80000000*95%)+(60000000*108%)
140800000
0.19214
total value of firm
732800000
2-
cost of equity
(expected dividend/market price)+growth rate
(4.83/76)+5%
11.36%
expected dividend
current dividend*(1+growth rate)
4.6*1.05
4.83
after tax cost of debt
YTM*(1-tax rate)
9.53*(1-.35)
6.1945
after tax cost of debt
YTM*(1-tax rate)
8.6*(1-.35)
5.59
Weighted average cost of debt
Debt Option
market value
weight
cost
weight*cost
1
76000000
0.5397727
6.1945
3.34
2
64800000
0.4602273
5.59
2.572670455
total
140800000
weighted average cost of debt
5.92
WACC
source
market value
weight
cost
weight*cost
Debt
140800000
0.1921397
5.92
3.34
equity
592000000
0.8078603
11.36
9.177292576
total
732800000
weighted average cost of capital
12.52