1) Empire Today Inc. has 10 million shares of common stock outstanding, 300,000 shares of 5%...

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Finance

1) Empire Today Inc. has 10 million shares of common stockoutstanding, 300,000 shares of 5% preferred stock outstanding, and7 million of 6.7 percent semiannual bonds outstanding, par value$1,000 each. The common stock currently sells for $85 per share andhas a beta of 1.15, the preferred stock currently sells for $103per share, and the bonds have 20 years to maturity and sell for 93%of par. The market risk premium is 11 percent, T-bills are yielding2.14 %, and the firm's tax rate is 25.7%.
a) Calculate market values of Empireâ€™s common stock, preferredstock, and debt.
b) Calculate market value weights of Empireâ€™s common stock,preferred stock, and debt, then explain your problem solvingstep-by-step.
c) Calculate costs of Empireâ€™s common stock, preferred stock,and debt
d) Calculate the firmâ€™s Weighted Average Cost of Capital
e) The CFO is assessing a potential project which will yield anIRR of 9.3%. The project has the firm level risk. Should the CFOaccept the project?

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4.4 Ratings (542 Votes)

a Market value of common stock 10000000 85 850000000 Market value of bond 7000000 093 1000 6510000000 Market value of preferred stock 300000 103 30900000 b Total market value 850000000 6510000000 30900000 7390900000 Weight of common stock See Answer

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