The market risk premium for FCIB is 9 percent, and has a tax rate of...
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Accounting
The market risk premium for FCIB is 9 percent, and has a tax rate of 35 percent. The risk-free rate of interest is 5%.
Willow-Woods Inc. has a capital structure comprised of the following:
8,500,000 shares of common stock outstanding,
200,000 shares of 7 percent preferred stock outstanding, and
85,000, 8.5 percent semiannual bonds outstanding, par value of $1,000 each.
The common stock currently sells for $34 per share and has a beta of 1.2, the preferred stock currently sells for $83 per share, and the bonds have 15 years to maturity and sell for 93 percent of par.
a) What is the market value of Willow-Woods capital structure? 4 marks
b) What rate should Willow-Woods should use to discount the cash flows of a new investment project that has the same risk as the companys typical project? 6 marks
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