Calculations - measuring your firm's cost of capital.

Please see the attached file for full problem description.

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You are responsible for measuring your firm's cost of capital. You have the following data.
Bond A Bond B
Coupon 4.00% 5.50%
Remaining Term 5 8
Existing Existing
New New
Market Price $925 $1,025
Flotation $0 $70
Amt Outstanding $400,000 $500,000
Tax Rate 34% 34%

Pref A: Pref B:
Coupon 2.00% 3.50%
Par $25 $50
Remaining Term N/A N/A
New/Existing Existing New
Market Price $22.50 $55.00
Flotation $0 $8
Amt Outstanding $125,000 $175,000

Common Stock
New Existing
Par $10 $10
Market Price $37.00 $37.00
Flotation $3.00% $0.00%
Amt Outstanding $800,000 $200,000
EPS $4
Div Payout 60.00%
Growth 4.00%

Retained Earnings
$1,525,000 outstanding

Compute the component costs of capital and the firm's weighted average cost of capital.
(Please show all work).

2.

You are responsible for keeping track of the going concern values for your firm's securities. You have accumulated the following information.

From your balance sheet:

BOND A Issued 3 yrs ago with an original term of 10 yrs. The bond carries a 8.25% coupon rate. Face value $700,000.

BOND B Issued 8 yrs ago with an original term of 10 yrs. The bond carries an 11.00% coupon rate. Face value $975,000.

PREF A 3.5% coupon rate. Par value is $25. Face value $60,000.

COMMON A You have outstanding at this time $500,000, par value $10. Growing at 2.00% annually and will pay annual dividends of 60.00% of earnings.

COMMON B You have outstanding at this time $100,000 of common B, par value of $1. This stock is non-voting and is subordinate to the A stock with respect to dividends. It is estimated to grow annually at a rate of $1.50%, paying 20.00% of earnings that are available after the A stock has been satisfied.

Your firm has Net Income After Tax of $375,000.

Since your firm has a AA credit rating, you have gathered the following competitive data.

Type of Security Credit Rating Competitive Yield

BONDS AAA 4.00%
BONDS AA 4.25%
BONDS BBB 5.00%
PREFERRED AA 4.00%
COMMON A AA 6.00%
COMMON B AA 6.50%

Calculate your aggregate value for the firm.

3.

Using the below balance sheets, prepare a complete analysis of the firm's financial position for the fiscal 2004, including cash flow statement.

ASSETS
Current 2004 2003
Cash 35,000 48,000
Accounts Receivable 80,000 65,000
Notes Receivable 20,000 25,000
Inventory 100,000 125,000
Total Current 235,000 263,000

Long Term
Plant & Equipment 265,000 250,000
Accum Deprec. (40,000) (34,000)

Net Plant & Equipment 225,000 216,000
Land 300,000 240,000

TOTAL ASSETS 760,000 719,000

LIABILITIES
Total Current Liabilities 175,000 155,000
Total Long Term Debt 369,000 325,000

TOTAL DEBT 544,000 480,000

EQUITY
Common Stock 91,000 91,000
Retained Earnings 125,000 148,000

Total Equity 216,000 239,000

TOTAL LIABILITIES & EQUITY 760,000 719,000

INCOME DATA Sales 600,000 500,000
Cost of Goods sold 305,000 230,000
Fixed Cost 125,000 95,000
Interest Expense 20,000 16,000
N I A T 74,000 83,000
Industry Current Ratio 2.00 1.90
Data Acid Test Ratio 1.10 1.00
Average Collection Period days 31.00 35.00
Inventory Turnover times 5.20 5.00
Debt to Assets 75% 75%
Times Interest Earned times 6.00 5.00
Net Profit Margin 7.10% 6.80%
Earning Power 25.00% 23.00%
Return on Total Assets 10.00% 8.00%
Fixed Asset Turnover times 5.00 6.00
Return on Equity 14.00% 12.00%