Lingenburger Cheese Corporation has 72 million shares of common stock outstanding, 260,000 shares of 4.4 percent preferred stock outstanding, par value of $100; and 145,000 bonds with a semiannual coupon rate of 5.5 percent outstanding, par value $2,000 each. The common stock currently sells for $65 per share and has a beta of 115, the preferred stock has a par value of $100 and currently sells for $91 per share, and the bonds have 15 years to maturity and sell for 105 percent of par. The market risk premium is 7.5 percent, T-bills are yielding 3.1 percent, and the company's tax rate is 21 percent. a. What are the firm's market value capital structure weights? Note: Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616. b. If the company is evaluating a new investment project that has the same risk as the firm's typical project, what rate should the firm use to discount the project's cash flows? Note: Do not round intermediate calculations enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a. Debt Preferred stock Equity b. Discount rate 8.55 %
Lingenburger Cheese Corporation has 72 million shares of common stock outstanding, 260,000 shares of 4.4 percent preferred stock outstanding, par value of $100; and 145,000 bonds with a semiannual coupon rate of 5.5 percent outstanding, par value $2,000 each. The common stock currently sells for $65 per share and has a beta of 115, the preferred stock has a par value of $100 and currently sells for $91 per share, and the bonds have 15 years to maturity and sell for 105 percent of par. The market risk premium is 7.5 percent, T-bills are yielding 3.1 percent, and the company's tax rate is 21 percent. a. What are the firm's market value capital structure weights? Note: Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616. b. If the company is evaluating a new investment project that has the same risk as the firm's typical project, what rate should the firm use to discount the project's cash flows? Note: Do not round intermediate calculations enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a. Debt Preferred stock Equity b. Discount rate 8.55 %
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![Lingenburger Cheese Corporation has 7.2 million shares of common stock outstanding, 260,000 shares of 4.4 percent preferred stock
outstanding, par value of $100; and 145,000 bonds with a semiannual coupon rate of 5.5 percent outstanding, par value $2,000 each.
The common stock currently sells for $65 per share and has a beta of 1.15, the preferred stock has a par value of $100 and currently
sells for $91 per share, and the bonds have 15 years to maturity and sell for 105 percent of par. The market risk premium is 7.5 percent,
T-bills are yielding 3.1 percent, and the company's tax rate is 21 percent.
a. What are the firm's market value capital structure weights?
Note: Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.
b. If the company is evaluating a new investment project that has the same risk as the firm's typical project, what rate should the firm
use to discount the project's cash flows?
Note: Do not round intermediate calculations enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
a. Debt
Preferred stock
Equity
b. Discount rate
8.55 %](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fda429ef4-6d96-42f1-83bd-c5c2d80a3f0c%2Fd422abf4-8b31-4a22-b8c3-1214cb1faa3d%2Fit5viwb_processed.png&w=3840&q=75)
Transcribed Image Text:Lingenburger Cheese Corporation has 7.2 million shares of common stock outstanding, 260,000 shares of 4.4 percent preferred stock
outstanding, par value of $100; and 145,000 bonds with a semiannual coupon rate of 5.5 percent outstanding, par value $2,000 each.
The common stock currently sells for $65 per share and has a beta of 1.15, the preferred stock has a par value of $100 and currently
sells for $91 per share, and the bonds have 15 years to maturity and sell for 105 percent of par. The market risk premium is 7.5 percent,
T-bills are yielding 3.1 percent, and the company's tax rate is 21 percent.
a. What are the firm's market value capital structure weights?
Note: Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.
b. If the company is evaluating a new investment project that has the same risk as the firm's typical project, what rate should the firm
use to discount the project's cash flows?
Note: Do not round intermediate calculations enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
a. Debt
Preferred stock
Equity
b. Discount rate
8.55 %
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