Reference no: EM132740194
Company Marvel has been in the filmmaking industry for quite a while and is specialized in making sci-fi and superhero movies. Due to recent advancement of digital technology and 5G internet, the company decides to set up a subsidiary company (Company Cyrus), which will specialize to focus on the development of filmmaking and internet related technology. This will further improve the company's comparative advantage in filmmaking industry and capture the latest trend and taste in the younger generation per comment from its CEO.
The total capital requirement of Company Cyrus will be at $30 million in total in market value term in the beginning. Company Marvel decides to finance Company Cyrus' operations with 40 percent corporate bond, 20 percent of preferred stock and 40 percent common stock. Company Marvel's current net income is $18 million with a dividend payout ratio of 30%.
Company Marvel currently has outstanding corporate bond of its own for $1 million notional amount in aggregate. The annual coupon rate of this bond is 8% and it is paid annually. The bond still has 5 years to maturity. The bond is currently traded in the bond market for $924,184 in aggregate total.
The preferred stock issued by Company Marvel have a perpetuity annual dividend payment of 6% for every $100 notional per share. Preferred stock is currently traded in the market for $75 per share.
Company Marvel's common stock is currently traded at $60 per share, and its current dividend payout is $5 per share. The dividend is also expected to grow at a constant rate of 10% a year forever. The flotation cost of external equity, if it is issued, is 5% of the dollar amount issued. Assume the tax rate is 25%. (Please show your calculations in all below question from (a) to (e))
(a) What is Company Marvel's cost of common stock?
(b) What is Company Marvel's cost of debt?
(c) What is Company Marvel's cost of preferred stock?
(d) Does Company Marvel need to issue new common stock or not and why?
(e) Estimate Company Cyrus' Weighted Average Cost of Capital (WACC).
|
Explain normalization and de-normalization
: Explain Normalization and De-Normalization. What are the different types of Normalization? -What is BCNF?
|
|
What are the bond equivalent yield
: What are the bond equivalent yield and the effective annual rate on the commercial paper? Why do these rates differ?
|
|
Evaluate what is the cash flow from financing for the year
: On January 2, 20X1, the entity leased an asset. Find what is the cash flow from financing for the year ended December 31, 20X1?
|
|
Inaccuracy of capital budgeting results
: There are five capital budgeting technique including Net present Value, Payback period, Discounted Payback Period, Internal rate of return (IRR) and Profitabili
|
|
What is company marvel cost of common stock
: Company Marvel has been in the filmmaking industry for quite a while and is specialized in making sci-fi and superhero movies. Due to recent advancement
|
|
Journalize entries for Sather Co and Boone Co for the sale
: The cost of the goods sold is $19,000. Journalize the entries for Sather Co. and Boone Co. for the sale, purchase, and payment of amount due
|
|
Create a list that contains the months of the year
: Create a list that contains the months of the year. Create a loop to print the month number and name (do not hard code the month number).
|
|
What are the class-state and interaction models
: What are the class, state, and interaction models and how are they related to each other?
|
|
Explain the risk-return trade-off concept concisely
: 1) What differs the lower-upper bound and best-worst scenario? Explain! 2) Explain the risk-return trade-off concept concisely
|