Project #11007 - Homework help

Looking for help with the following:

(Defining capital structure weights) Templeton Extended Care Facilities, Inc. is considering the acquisition of a chain of cemeteries for $380 million. Since the primary asset of this business is real estate, Templeton’s management has determined that they will be able to borrow the majority of the money needed to buy the business. The current owners have no debt financing but Templeton plans to borrow $280 million and invest only $100 million in equity in the acquisition. What weights should Templeton use in computing the WACC for this acquisition?

The appropriate WD weight is ?   (round to one decimal Place)

(Individual or component costs of capital) Compute the cost of capital for the firm for the following:

  1. A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 11.6%. The bonds have a current market value of $1,123 and will mature in 10 years. The firm’s marginal tax rate is 34%.

The cost of capital from this bond debt is ?  ( round to two decimal places)

  1. A new common stock issue that paid a $1.76 dividend last year. The firm’s dividends are expected to continue to grow at 6.1% per year forever. The price of the firm’s common stock is now $27.67.

 

  1. A preferred stock paying a 9.2% dividend on a $136 par value.

 

  1. A bond selling to yield 12.4% where the firm’s tax rate is 34%.

 

(Individual or component costs of capital) Your firm is considering a new investment proposal and would like to calculate its weighted average cost of capital. To help in this, compute the cost of capital for the firm for the following:

  1. A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 12.6%. The bond is currently selling for a price of $1,127 and will mature in 10 years. The firm’s tax rate is 34%.

 

  1. If the firm’s bonds are not frequently traded, how would you go about determining a cost of debt for this company?

 

  1. A new common stock issue that paid a $1.78 dividend last year. The par value of the stock is $14, and the firm’s dividends per share have grown at a rate of 7.4% per year. This growth rate is expected to continue into the foreseeable future. The price of this stock is now $27.58.

 

  1. A preferred stock paying a 9.4% dividend on a $123 par value. The preferred shares are currently selling for $146.46.

 

  1. A bond selling to yield 13.9% for the purchaser of the bond. The borrowing firm faces a tax rate of 34%.

 

Subject Mathematics
Due By (Pacific Time) 08/18/2013 10:00 pm
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