Regions, Inc., has 7.3 million shares of common stock outstanding. The current s

Question

Regions, Inc., has 7.3 million shares of common stock outstanding. The current share price is $62.3, and the book value per share is $5.3. Regions also has two bond issues outstanding. The first bond issue has a face value of $71.3 million, a 7.3 percent coupon, and sells for 91.5 percent of par. The second issue has a face value of $36.3 million, a 7.8 percent coupon, and sells for 90.5 percent of par. The first issue matures in 19 years, the second in 11 years. The most recent dividend was $3.50 and the dividend growth rate is 9 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 38 percent. What is the company

Explanation / Answer

Bond Issue 1 - 71.3 million, 7.3%, market price 91.5%, 19 years. Market value = 71.3*(.915) = 65.24 million, Annual interest = 5204900*62% = 3227038 Net after tax cost= 3227038/71.3 million = 4.53% Bond Issue #2 - 36.3 million, 7.8%, market price 90.5%, 11 years Market value = 36.3*(.905) = 32.85, Annual interest = 2831400*62% 1755468/36.3 million = 4.84% Common stock = 7.3 million shares. Expected Return = Next Div / Market Price + Growth % Next Dividend =3.5*1.09 = 3.82/62.3 = 6.13% + 9% = 15.13% would be the Expected Return WACC - Bond 1 = 65.24*4.53% = 2955372 Bond 2 = 36.3*4.84% = 1756920 Common Stock = 7.3*62.3 = 454.79*15.13% = 68600000 Total value of 17454000 will cost 73312292, or WACC = 23.80%

Related Questions

Navigate

• Browse (All)
• Browse R
• Subjects

---