Compute the cost of borrowing by using debt

Reference no: EM139397

Q. ABC Manufacturing is major producer of farm equipment. Presently, firm has two divisions: machinery division also farm implement division - each have various degrees of risk. You have got the following partial information for ABC Manufacturing:
Debt
Bond A 10 year bond 9% paid semi-annually issued 2008 $1,000,000
Bond B 15 year bond 6% paid semi-annually issued 2010 $4,000,000
Bond C 3 year bond 5% paid semi-annually issued 2012 $1,000,000
Total bonds issued also outstanding $6,000,000
Common Equity
Common Shares $200,000
Contributed Surplus $1,800,000
Retained Earnings $2,000,000
Total Equity $4,000,000
You observe that thirty day Government T-bills are selling to yield 0.2432445% or 3% each year also market risk premium for firm is= 10%. Average beta for firm is 1.4. Firm has marginal tax rate of= 40%. Company shares are presently selling in market for= $56.55 also firm just paid its most current dividend of= $8.00. Management expects to be able to maintain a growth rate of 2.5% forever.

Based on information given above, compute the cost of borrowing by using debt for present company.

Reference no: EM139397

Questions Cloud

Find out the standard deviation of returns over this iod : Find out the variance of returns over this each iod. Find out the standard deviation of returns over this each iod.

Explain fully the reasons for your choice : Could this be balance sheet for St. Ann's Credit Union or Bank of America. Explain fully the reasons for your choice.

Unemployment rate been affected over past two years : How has unemployment rate been affected over past two years by Fed's policy of quantitative easing.

How many of coupon bonds should east coast yachts : How many of coupon bonds should East Coast Yachts issue to increase the $40 million? How many of zeroes must it issue.

Compute the cost of borrowing by using debt : Based on information given above, compute the cost of borrowing by using debt for present company.

Iron company sells its irons : Suppose that discount rate is 10% each year, there is no possibility of repeat order, also Q will pay either in full or not at all.

Payout ratios also opportunity cost of capital : You may suppose any values for payout ratios also opportunity cost of capital. Compute stock price each share. Find out the value of PVGO.

Illustrate how book value each share : Illustrate how book value each share, earning each share also dividends each share change over years.

Trade with government of the oil producing nation : In trade with government of the oil producing nation. Callaghan Motors' bonds have ten years remaining to maturity.

User Account

All Pages