Question 2 YK Products Ltd intends to make use of its weighted average of cost of capital (WACC) to evaluate a potential

[answerhappygod]

Question 2 Yk Products Ltd Intends To Make Use Of Its Weighted Average Of Cost Of Capital Wacc To Evaluate A Potential 1 (161.53 KiB) Viewed 33 times

Question 2 YK Products Ltd intends to make use of its weighted average of cost of capital (WACC) to evaluate a potential project for further expansion. Long term liabilities and shareholders' equity are recorded as their book values on the company's balance sheet. Their book values are calculated by the outstanding number of bonds or stocks times their par value. You are provided with the following information extracted from the balance sheet of the company for the current year. Long term liabilities: $ Zero coupon bonds payable due in 13 years, $1,000 par value 3,600,000 Shareholders' equity: $ 8% preferred stocks, $10 par value 300,000 Common stocks, $5 par value 1,000,000 Other information: The current market prices are $7.35 for common shares, $13.45 for preference shares, and $460.95 for zero coupon bonds respectively. • Zero coupon bonds discount semi-annually. • Dividends for common stockholders are estimated to grow by 5% annually for the foreseeable future indefinitely and $0.55 dividend per share has just been paid. • The company is subject to the corporation tax rate of 30% in the current year. [Note: take full decimal places in the middle steps and round your FINAL answer to 2 decimal places (i.e. 1.23%)] (2 marks) (a) Calculate the cost of equity. (in %) (b) Calculate the cost of preferred stock. (in %) (2 marks) (c) Calculate the after-tax cost of debt. (in %) (3 marks) (d) Calculate the company's outstanding number of zero coupon bonds, preferred stocks and common stocks. (3 marks) (e) Calculate the company's WACC. (in %) (5 marks)