Chapter 13

Question 8

Input Area:

Shares outstanding 8,300,000

Market price per share $ 53
Book value per share $ 4
Bond I
Book value $ 70,000,000
Coupon rate 7.00%
Bond price (% of par) 108.3
Settlement date 01/01/00
Maturity date 01/01/08
Payments per year 2
Bond II
Book value $ 60,000,000
Coupon rate 7.50%
Bond price (% of par) 108.9
Settlement date 01/01/00
Maturity date 01/01/27
Payments per year 2

Output Area:

a. BV(E) $ 33,200,000
BV(D) $ 130,000,000
V $ 163,200,000

E/V 0.2034
D/V 0.7966

b. MV(S) $ 439,900,000
MV(B) $ 141,150,000
V $ 581,050,000

S/V 0.7571
B/V 0.2429
The market value weights are more relevant
because they represent a more current
valuation of the debt and equity.
Chapter 13
Question 11

Input Area:

Debt
Bonds outstanding 10,000
Settlement date 01/01/00
Maturity date 01/01/25
Annual coupon rate 5.60%
Coupons per year 2
Bond price (% of par) 97

Common stock
Shares outstanding 425,000
Beta 0.95
Share price $ 61

Market
Market risk premium 7.00%
Risk-free rate 3.80%
Tax rate 35%
Output Area:

Market value of debt $ 9,700,000

Market value of equity $ 25,925,000
Market value of firm $ 35,625,000

Pretax cost of debt 5.83%

Aftertax cost of debt 3.79%

Cost of equity 10.45%

WACC 8.64%
Chapter 13
Question 17

Input Area:

Bond 1:
Bonds outstanding 50,000
Settlement date 1/1/2000
Maturity date 1/1/2020
Annual coupon rate 5.70%
Coupons per year 2
Bond price (% of par) 106.50

Bond 2:
Bonds outstanding 200,000
Settlement date 1/1/2000
Maturity date 1/1/2030
Annual coupon rate 0%
Coupons per year 2
Bond price (% of par) 17.50

Common stock
Shares outstanding 2,300,000
Beta 1.20
Share price $ 65

Preferred stock outstanding

Shares outstanding 125,000
Coupon rate 4.00%
Share price $ 79

Market
Market risk premium 7.00%
Risk-free rate 4.00%
Tax rate 40%

Output Area:

Market value of bond 1 $ 53,250,000

Market value of bond 2 $ 35,000,000
Market value of equity $ 149,500,000
Market value of preferred $ 9,875,000
Market value of firm $ 247,625,000

Bond 1 pretax cost 5.17%

Bond 1 aftertax cost 3.10%

Bond 2 pretax cost 5.90%

Bond 2 aftertax cost 3.54%

Cost of equity 12.40%

Cost of preferred 5.06%

WACC 8.86%