market value capital structure Within the Week 4 Assignment Forum, review and discuss Weighted Average Cost of Capital (WACC) concepts as follows:
When creating your initial post, assume you are the CFO of Hankins Corporation. Given the key financial data below, perform a detailed and thorough financial analysis (show and explain all calculations) that includes the following:
- Describe the firm’s market value capital structure:
- What is the market value for each type of financing used by the firm: equity, preferred stock, and debt?
- What is the total market value for Hankins Corporation?
- What are the respective market value weights for each component of the firm’s financing (equity, preferred stock, and debt)?
- If the firm is evaluating a new investment project that has the same risk as the firm’s typical project, what rate should the firm use to discount the project’s cash flows? Hint: the firm’s WACC is the appropriate discount rate. Compute Hankins’ WACC:market value capital structure
- What is the cost of equity using CAPM?
- If the YTM of the bonds is 5.93%, and YTM represents the cost of debt, what is the after-tax cost of this debt?
- What is the cost of the firm’s preferred stock?
- Based on this information, what is the WACC for Hankins Corporation? Answer using the nearest decimal point
Key financial data for Hankins Corporation:market value capital structure
- Common stock outstanding = 5.4 million shares; market value = $64/share; beta = 1.13
- 5.6% Preferred stock outstanding = 290,000 shares issued with par value = $100 each. Current market value of preferred stock = $103/share.
- 6.7% semi-annual bonds outstanding = 125,000 bonds issued with par value = $1,000 each; market value is 109% of par; all bonds mature in 20 years.
- Market risk premium = 6.8%
- T-bills current yield = 4.3%
- Corporate tax rate = 34%market value capital structure
