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    Calculations - measuring your firm's cost of capital.

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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%

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    Solution Preview

    HELP WITH CALCULATING NUMBERS IN RELATION TO FIRMS FINANCIAL POSITION WITH RESPECT TO FISCAL YEAR 1994

    Firm's Current Ratio 1.343
    Data Acid Test Ratio 0.771
    Average Collection Period days 48.66
    Inventory Turnover times 3.05
    Debt to Assets 71.5%
    Times Interest Earned times 3.7
    Net Profit Margin 12.33%
    Earning Power 24.26%
    Return on Total Assets 9.73%
    Fixed Asset Turnover ...

    $2.49

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