Nikul Lingenburger Cheese Corporation has 6.4 million shares of commonstock outstanding, 225,000 shares of 3.7 percent preferred stockoutstanding, par value of $100; and 110,000 bonds with a semiannualcoupon rate of 5.4 percent outstanding, par value $1,000 each. Thecommon stock currently sells for $72 per share and has a beta of 1.20,the preferred stock has a par value of $100 and currently sells for $84per share, and the bonds have 18 years to maturity and sell for 108percent of par. The market risk premium is 7.2 percent, T-bills areyielding 3.2 percent, and the company's tax rate is 24 percent.a. What are the firm's market value capital structure weights?Note: Do not round intermediate calculations and round youranswers to 4 decimal places, e.g., .1616.b. If the company is evaluating a new investment project that has thesame risk as the firm's typical project, what rate should the firm useto discount the project's cash flows?Note: Do not round intermediate calculations enter your answeras a percent rounded to 2 decimal places, e.g., 32.16.a. Debt0.1985Preferred stock0.0316Equity0.7699b. Discount rate%W

Step 1:a)We have to calculate the firm's market value capital structure weights.Calculations are…

Answered: Lingenburger Cheese Corporation has 6.4…

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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es Lingenburger Cheese Corporation has 6.6 million shares of common stock outstanding, 235,000 shares of 3.9 percent preferred stock outstanding, par value of $100; and 120,000 bonds with a semiannual coupon rate of 5.6 percent outstanding, par value $1,000 each. The common stock currently sells for $70 per share and has a beta of 1.10, the preferred stock has a par value of $100 and currently sells for $86 per share, and the bonds have 15 years to maturity and sell for 104 percent of par. The market risk premium is 7.4 percent, T-bills are yielding 3.4 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…
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Lingenburger Cheese Corporation has 8.3 million shares of common stock outstanding, 305,000 shares of 3.9 percent preferred stock outstanding, and 190,000 bonds with a semiannual coupon rate of 5.2 percent outstanding, par value $2,000 each. The common stock currently sells for $56 per share and has a beta of 1.20, the preferred stock has a par value of $100 and currently sells for $100 per share, and the bonds have 19 years to maturity and sell for 108 percent of par. The market risk premium is 6.8 percent, T-bills are yielding 3.2 percent, and the company's tax rate is 25 percent. a. What is the firm's market value capital structure? (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? (Do not round intermediate calculations enter your answer as a percent rounded…
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