WACC Estimation The following table gives the balance sheet for Travellers Inn Inc. (TH), a company that was formed by m

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Wacc Estimation The Following Table Gives The Balance Sheet For Travellers Inn Inc Th A Company That Was Formed By M 1 (34.62 KiB) Viewed 39 times

Wacc Estimation The Following Table Gives The Balance Sheet For Travellers Inn Inc Th A Company That Was Formed By M 2 (35.28 KiB) Viewed 39 times

Wacc Estimation The Following Table Gives The Balance Sheet For Travellers Inn Inc Th A Company That Was Formed By M 3 (19.67 KiB) Viewed 39 times

WACC Estimation The following table gives the balance sheet for Travellers Inn Inc. (TH), a company that was formed by merging a number of regional motel chains Travellers Inn (Millions of Dollars) $10 $10 10 Cash Accounts receivable Inventories Current assets Net forcedes 5 20 20 550 50 $25 30 Accounts payable Accruals Short-term debt Current liabilities Long-term debt Preferred stock Common equity Common stock Retained earings Total common equity Total abilities and equity 5 510 30 540 Total assets $100 5100 The following facts also apply to TII: 1. Short-term debit consists of bank loans that currently cost 10%, with interest payable quarterly. These loans we used to finance receivables and inventories on a seasonal basis, so bank loans are zero in the off season 2. The long-term debt consists of 30 year semical payment mortgage bonds with a coupon rate of 10%. Currently, these boods provide a yield to wrivestors of 12 If new bonds were sold, they would have a 12% yield to maturity 3. TII's perpetual preferred stock has a $100 par value, pays quarterly dividend of $2.00, and has a yield to investors of 10%. New perpetual preferred stack would have to provide the same yield to investors, and the company would incur aflotation cost to sell it. 4. The company has 4 million shares of common stock outstanding P - $20, but the stock has recently traded in the price range from 517 to 523. Do 51 and 52 ROE based on average equity was 22% in the most recent year, but management expects to increase the return on equity to 339 however, security analysts and investors generally are not aware of management's optimism in this regard, 5. Betas, as reported by security analysts, range from 15 to 1.7, the bondate is 8%; and is estimated by vanou brokerage houses to range from 4.5% to 5.5 Some brokerage house analysts report forecasted dividend growth rates in the range of 10% to 15% over the foreseeable future 6. TI's financial vice president recently polled some pension fund investment managers who hold the securities regarding what minimum rate of monthl's common would make them willing to buy the common rather than Tul bonds, oven that the bonds yielded 12. The responses suggested and premium wer TH bonds of 4 to 6
TII's financial vice president recently polled some pension fund investment managers who hold's securities regarding what minimum rate of return on TIT's con would make them willing to buy the common rather than til bonds, given that the bonds yielded 12%. The responses suggested and premam over Til boods of 4 to 6 percentage points 7. Tit is in the 30% federal-plus-state tax bracket 8. Tul's principal investment banker predicts a decline in interest rates, with a falling to 10% and the bord cierto B16, although the bank acknowledges that an increase in the expected inflation rate could lead to an icrease rather than a decrease in interest rates Assume that you were recently hired by II a financial analyst and that your boss, the tree, has asked you to estimate the company's WC under the assumption that no new equity will be issued Your cost of capital should be appropriate for use in evaluating projects that are in the same nisk class as the assets it now operates . What are the market value weshes for long-term debt, preferred stock, and common stock in Travellers capital structure? Do not found intermediate calculations. Round you answers to two decimal places Weight Long-term debt Preferred stock Common stock % b. What is the required return on long-term debt? Round your answer to two decimal places c. What is the cequired return on preferred stock? Do not round intermediate calculations, Round your answer to two decimal places. d. Using the ocr model and the retention growth model for so, what is the required retum on stock? Do not round uitermediate calculations. Round your swers to two decimal places Estimate of a Retention growth model Lowest analyst a Highest analyst Required retum on stock e. Using the own bond yield plus-judgemental rok premium approach, what is the required return on stack? Do not round intermediate calculations, Round your answers to two decimal places Required retum on stock (Judgemental risk premium 4%) Required return on stock (Judgementalisk premium Using the CAPM approach, what is the required return on stock? Do not round intermediate calculations. Round your answers to two decimal places Required return on stock (beta-13, RP 4.5): Required return on stock (beta-1, 5.5%)
decimal places Estate of Retention growth model lowest analyst Highest analyst Reged return on stock Using the own-bond-yield plus judgementalisk premium approach, what is the required return on stock? Do not round intermediate calculation Round your answers to two deomal places Required return on stock (judgemental ink premium leged return on stock (judgemental risk premium - 6) Using the CAPM approach, what is the required return on stock? Do not round intermediate calculations. Round your answers to two decimal places locured return on stock (beta-13. - 4.5%) Required return on stock (beta-13, 5.5%) Required return on stock (beta-1.7.4.5%) Required return on stock (beta-1.7 RPM - 554) Q: What is Travellers' WACC? Use the required returns on stock from parte. Do not found intermediate calculations, Round your awwers to two decimal place WACC (lowest required return on stock): WACC (highest required return on stock) Check My Work -