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

50.1K

Verified Solution

Question

Finance

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%.
Calculate costs of Empire’s common stock, preferred stock, anddebt, then explain your problem solving step-by-step.
Calculate the firm’s Weighted Average Cost of Capital andexplain the meaning of WACC using your calculated solution. Showstep by step
The CFO is assessing a potential project which will yield an IRRof 9.3%. The project has the firm level risk. Should the CFO acceptthe project?

Answer & Explanation Solved by verified expert

4.2 Ratings (850 Votes)

Answer 1Using CAPM modelCosts of Empires common stock Risk free rate Beta Marketrisk premium 214 115 11 1479Costs of Empires common stock 1479Costs of preferred stock Annual dividend Current price 100 5 103 4854Costs of preferred stock 4854Cost of See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

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%.Calculate costs of Empire’s common stock, preferred stock, anddebt, then explain your problem solving step-by-step.Calculate the firm’s Weighted Average Cost of Capital andexplain the meaning of WACC using your calculated solution. Showstep by stepThe CFO is assessing a potential project which will yield an IRRof 9.3%. The project has the firm level risk. Should the CFO acceptthe project?