Please provide specific Excel functions =NPV(…), =IRR(…), =AVERAGE(…), =YIELD(…) whenever applicable. Given the following information for Bajor...

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Finance

Please provide specific Excel functions =NPV(…),=IRR(…), =AVERAGE(…), =YIELD(…) whenever applicable.

Given the following information for Bajor Co.:

Debt: Bajor’s long-term debt capital consists of bondswith 6.250 percent coupon rate (semiannual coupon payments), 9years time-to-maturity, and current price of 106.61 percent of itspar value (i.e., price = 106.61 relative to full amount redemptionpar of 100).

Preferred stock: Bajor has not issued any preferredstocks.

Common stock (equity):

  • Bajor’s equity capital consists of common stocks with the mostrecent annual dividend of $0.92 per share, and a current stockprice of $14 per share.
  • According to online data sources, Bajor’s long-term dividendgrowth (for next 5-Year average, per annum) g = 4.5% per year.
  • The “risk-free” Treasury bill return is 3.8%; the marketexpected return for the stock market on average is 12.3%; andBajor’s systematic risk (Beta) is 0.71.

Taxes: The applicable federal-plus-state corporate taxrate for Bajor is 25.7 percent.

Capital weight: Bajor’s “Market Cap” amounts to $18.23billion, and “Total Debt” amounts to $14.44 billion. You can usesuch data to estimate the capital weights for equity and debt,respectively (We and Wd).

Time constraint: For any investment projects, Bajor arerequired by her investors to recover its initial cost within nomore than 6 years.

Q1: What is Bajor’s pretax cost of debt Rd, cost ofequity Re, and WACC, respectively? (Hint: For the best estimate ofcost of equity Re, you must apply both CAPM and Dividend GrowthModel and then average the two estimates.)  

Answer & Explanation Solved by verified expert
4.3 Ratings (987 Votes)
cost of debt coupon 6250 Term 9 years current price 10661 and maturity value 100 Note since there is semi annual coupon payments we wil use discount 18 semi annual periods and the r will be semi    See Answer
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Please provide specific Excel functions =NPV(…),=IRR(…), =AVERAGE(…), =YIELD(…) whenever applicable.Given the following information for Bajor Co.:Debt: Bajor’s long-term debt capital consists of bondswith 6.250 percent coupon rate (semiannual coupon payments), 9years time-to-maturity, and current price of 106.61 percent of itspar value (i.e., price = 106.61 relative to full amount redemptionpar of 100).Preferred stock: Bajor has not issued any preferredstocks.Common stock (equity):Bajor’s equity capital consists of common stocks with the mostrecent annual dividend of $0.92 per share, and a current stockprice of $14 per share.According to online data sources, Bajor’s long-term dividendgrowth (for next 5-Year average, per annum) g = 4.5% per year.The “risk-free” Treasury bill return is 3.8%; the marketexpected return for the stock market on average is 12.3%; andBajor’s systematic risk (Beta) is 0.71.Taxes: The applicable federal-plus-state corporate taxrate for Bajor is 25.7 percent.Capital weight: Bajor’s “Market Cap” amounts to $18.23billion, and “Total Debt” amounts to $14.44 billion. You can usesuch data to estimate the capital weights for equity and debt,respectively (We and Wd).Time constraint: For any investment projects, Bajor arerequired by her investors to recover its initial cost within nomore than 6 years.Q1: What is Bajor’s pretax cost of debt Rd, cost ofequity Re, and WACC, respectively? (Hint: For the best estimate ofcost of equity Re, you must apply both CAPM and Dividend GrowthModel and then average the two estimates.)  

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