Please show me the work to get this answers. Please don\'t use \"PVIF\" format,
ID: 2764541 • Letter: P
Question
Please show me the work to get this answers. Please don't use "PVIF" format, please write all the process down for me. Vedder, Inc., has 7.7 million shares of common stock outstanding. The current share price is $62.70, and the book value per share is $5.70. Vedder also has two bond issues outstanding. The first bond issue has a face value of $71.7 million, a coupon rate of 7.2 percent, and sells for 89.5 percent of par. The second issue has a face value of $36.7 million, a coupon rate of 8.2 percent, and sells for 88.5 percent of par. The first issue matures in 22 years, the second in 14 years. The most recent dividend was $3.70 and the dividend growth rate is 8 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 30 percent. Required: What is the company's cost of equity? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16)) Cost of equity 14.37±196 % What is the company's aftertax cost of debt? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) Aftertax cost of debt 6.12 ± 1%, % What is the company's equity weight? (Do not round intermediate calculations. Enter your answer rounded to 4 decimal places (e.g.,.1632).) Equity weight | .8332 ± 1% What is the company's weight of debt? (Do not round intermediate calculations. Enter you answer rounded to 4 decimal places (e.g,.1632).) Debt weight .1668 ± 1% What is the company's WACC? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) WACC 13.00 ± 1% 96Explanation / Answer
First Bond Bond Par Value 71,700,000 Bond Market Price@89.5% of face value 64,171,500 Years To maturity 22.00 Annual Interest @7.2%= 5,162,400 YTM Formula= [Annual Interest+(Par Value-Market Value)/Years to Maturity]/(Par value+Market Price*2)/3 YTM = [5162400+(71700000-64171500)/22]/(71700000+64171500*2)/3 YTM = 8.25% approx Tax rate =30% Post Tax cost of bond =8.25%*(1-0.30)= 5.78% Second Bond Bond Par Value 36,700,000 Bond Market Price@88.5% of face value 32,479,500 Years To maturity 14.00 Annual Interest@8.2%= 3,009,400 YTM Formula= [Annual Interest+(Par Value-Market Value)/Years to Maturity]/(Par value+Market Price*2)/3 YTM = [3009400+(36700000-32479500)/14]/(36700000+32473500*2)/3 YTM = 9.74% approx Tax rate =40% Tax rate =30% Post Tax cost of bond =9.74%*(1-0.30)= 6.82% After Tax cost of Debt Bond Market Value % wt value Post Tax cost Wtd cost Bond 1. 64,171,500 66% 5.78% 3.83% Zero coupon bond 32,479,500 34% 6.82% 2.29% Total 96,651,000 6.13% 2 So Post tax cost of total debt = 6.13% Common Stock Outstanding = 7,700,000 Current Share Price= 62.70 Market Value of shares= 482,790,000 Recent Dividend =D0= 3.70 Dividend Growth rate =g= 8% Assume cost of equity =k So P0=D0(1+g)/(k-g) 62.70=3.7*1.08/(k-0.08) 62.70k-5.016=3.996 k=14.37% 1 So cost of Equity =14.37% WACC Type of capital Market Value % Weight Market Value Post Tax cost Wtd Cost Common Equity 482,790,000 83.32% 14.37% 11.97% Debt 96,651,000 16.68% 6.13% 1.02% Total 579,441,000 13.00% 3 Weight of Equity 83.32% 4 Weight of Debt 16.68% 5 WACC = 13.00%