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  3. 1) empire today inc. has 10 million shares of comm

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 Empire’s common stock, preferredstock, and debt.

b) Calculate market value weights of Empire’s common stock,preferred stock, and debt, then explain your problem solvingstep-by-step.

c) Calculate costs of Empire’s common stock, preferred stock,and debt

d) Calculate the firm’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?

Answer & Explanation Solved by verified expert
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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