Solution-What is the firm cost of common stock

What is the firm cost of common stock

Assignment Help Finance Basics

Reference no: EM133119701

A leading producer of custom automobile accessories, has hired you to estimate the firm's weighted average cost of capital. The balance sheet and some other information are provided below.

Assets
Current assets	$ 38,000,000
Net plant, property, and equipment	101,000,000
Total assets	$139,000,000

Liabilities and Equity
Accounts payable	$ 10,000,000
Accruals	9,000,000
Current liabilities	$ 19,000,000
Long-term debt (40,000 bonds, $1,000 par value)	40,000,000
Total liabilities	$ 59,000,000
Common stock (10,000,000 shares)	30,000,000
Retained earnings	50,000,000
Total shareholders' equity	80,000,000
Total liabilities and shareholders' equity	$139,000,000

The stock is currently selling for $15.25 per share, and its noncallable $1,000 par value, 20-year, 7.25% bonds with semiannual payments are selling for $875.00. The beta is 1.25, the yield on a 6-month Treasury bill is 3.50%, and the yield on a 20-year Treasury bond is 5.50%. The required return on the stock market is 11.50%, but the market has had an average annual return of 14.50% during the past 5 years. The firm's tax rate is 25%.

Refer to the data for the Collins Group. Based on the CAPM, what is the firm's cost of common stock?

Reference no: EM133119701

Questions Cloud

Calculate the npv of the project : Calculate the NPV of the project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Differences between a group and a team : 1. Start by defining similarities and differences between a group and a team. How does teamwork differ from group work?

CST2330 Data Analysis for Enterprise Modelling Assignment : CST2330 Data Analysis for Enterprise Modelling Assignment Help and Solution, Middlesex University - Assessment Writing Service

Economic benefits for primary and secondary markets : Discuss the economic benefits for primary and secondary markets. Briefly explain your understanding of an IPO, the net valuation of a firm and what can happen o

What is the firm cost of common stock : A leading producer of custom automobile accessories, has hired you to estimate the firm's weighted average cost of capital. The balance sheet and some other inf

Build a porfolio of stocks : Assume you want to build a porfolio of stocks. The more stocks you add to your portfolio the more of your risk is diversified away. As a matter of fact, you nee

Expected one-year interest rates : Suppose that the yield curve shows that the one-year bond yield is 6 percent, the two-year yield is 8 percent, and the three-year yield is 10 percent.

Different forms of market efficiency : (a) We discussed about different forms of market efficiency. Briefly describe each of them. Which form of efficiency do you consider closer to what happens in t

Default of mortgage-backed securities : Briefly explain how if the default of mortgage-backed securities began the crisis, credit default swaps made things much worse

User Account

All Pages

What is the firm cost of common stock

Reference no: EM133119701

Reference no: EM133119701

Questions Cloud

Reviews

Write a Review

Finance Basics Questions & Answers

Financial reporting and analysis

A report on financial accounting

Describe the types of financial ratios

Differences between sole proprietorship and corporation

Prepare a cash budget statement

What are the implied interest rates

State pricing theory and no-arbitrage pricing theory

Small business administration

Effect of financial leverage

Evaluate the basis for the payment to the lender

Importance of opps, ipps, mpfs and dmepos

Time value of money

Assured A++ Grade

Academics

Major Subjects

Majors

Get In Touch

TERMS & POLICIES

HELP & SUPPORT