Finance and Par Value

Good Essays
Chapter 14

1. Templeton Extended Care Facilities, Inc. is considering the acquisition of a chain of cemeteries for $410 million. Since the primary asset of this business is real estate, Templeton’s management has determined that they will be able to borrow the majority of the money needed to buy the business. The current owners have no debt financing but Templeton plans to borrow $320 million and invest only $90 million in equity in the acquisition. What weights should Templeton use in computing the WACC for this acquisition? 2. In August of 2009 the capital structure of the Emerson Electric Corporation (EMR) (measure in book and market values) appeared as follows:
Thousands of dollars Book Values Market values
Short- term debt $1,312,000 $1,312,000
Long-term debt 11,880,000 11,880,000
Common equity 9,142,000 26,115,000
Total capital 22,334,000 39,307,000

What weights should Emerson use when computing the firm’s weighted average cost of capital?

3. Compute the cost of capital for the firm for the following: a. A bond that has a $1,000 par value and a contract or coupon interest rate of 11.3%. The bonds have a current market value of $1,128 and will mature in 10 years. The firm’s marginal tax rate is 34%. b. A new common stock issue that paid a $1.81 dividend last year. The firm’s dividends are expected to continue to grow at 7.2% per year forever. The price of the firm’s common stock is now $27.28 c. A preferred stock paying a 8.5% dividend on a $138 par value. d. A bond selling to yield 11.7% where the firm’s tax rate is 34%. 4. Your firm is considering a new investment proposal and would like to calculate its weighted average cost of capital. To help in this, compute the cost of capital for the firm for the following:

a. A bond that has a $1,000 par value and a contract or coupon interest rate of 11.4%. The bond is currently selling for a price of $1,122 and will mature in 10 years. The firm’s tax rate is 34%.

You May Also Find These Documents Helpful

  • Satisfactory Essays

    Finance Value

    • 619 Words
    • 3 Pages

    By: Melvin Davis Applied Managerial Finance Phase 3 discussion board Dr. Bilal Makkawi April 24, 2013 Abstract After meeting with the CEO and the VP of the company I have been assigned the task to explain and define certain material for the company as the Vice President of finance. In order for everyone to have knowledge of what is about to take place in the upcoming weeks I will be defining and explaining some very vital information on Net Present Value (NPV), the Internal Rate of Return…

    • 619 Words
    • 3 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Finance and Value Iridium

    • 301 Words
    • 2 Pages

    or equity. 2. Value Iridium’s shares as of January 1999 and as of May 1999. 3. Propose a reorganization plan for Iridium based on your value estimates and the outstanding claims as of July 1999 4. Based on your value estimates and the reorganization plan, estimate the magnitude of the costs of financial distress for Iridium as a fraction of firm value in January 1999. 1. Assuming the market was rational at the time (i.e. market prices reflect fundamental values), how much was Iridium…

    • 301 Words
    • 2 Pages
    Satisfactory Essays
  • Satisfactory Essays

    to build an advantage. CFOs have to balance opportunities, the long-established questions which arises due to the globalization and the challenges of operating in multiple environments. By utilizing their internal capital markets, CFO can produce value in three functions: managing risk globally, global capital budgeting and financing the internal capital market. The existence of an internal capital market also broadens a firms risk management options. Instead of overseeing all money exposures…

    • 582 Words
    • 3 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Finance and Present Value

    • 513 Words
    • 3 Pages

    Week 1 Capital Budgeting I Tutorial: Chapter 1, 2 Chapter 1 Introduction to Corporate Finance Question 3: Investment and financing decisions Vocabulary test. Explain the differences between: a. Real and financial assets. b. Capital budgeting and financing decisions c. Closely held and public corporations d. Limited and unlimited liability. Answer a. Financial assets, such as stocks or bank loans, are claims held by investors. Corporations sell financial assets to raise…

    • 513 Words
    • 3 Pages
    Satisfactory Essays
  • Good Essays

    upgrade for the plant. The NPV and IRR seem to relay heavily on the terminal value of the pipeline. The Japanese technology might be more efficient in the long run than the upgrades. The Merseyside project is much simpler and costs aren’t spread over 3 years. 3. Is Elizabeth Eustace’s treatment of the right-of-way correct in her spreadsheet analysis? I don’t think it is at all correct to assume the terminal value will be $40 million in 15 years. Projecting 15 years out is a very long time…

    • 712 Words
    • 3 Pages
    Good Essays
  • Satisfactory Essays

    Par Inc

    • 475 Words
    • 2 Pages

    The management at Par Inc. believes that with the introduction of a cut-resistant, longer-lasting golf ball could increase their market share. A new golf ball coating designed to resist cuts and provide a more durable ball have been developed and tested. A sample of 40 balls of both the new and current models were tested with a mechanical hitting machine so that any difference between the mean distances for the two models could be attributed to a difference in the two models. Therefore, the hypothesis…

    • 475 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    Par Inc

    • 385 Words
    • 4 Pages

    Case Problem: Par, Inc. Section I: Summary Par, Inc., a major manufacturer of golf equipment believes that a cut-resistant, longer lasting golf ball could increase their market share. In addition to the requirement that the ball be longer lasting, they wanted to ensure that the new coating would not reduce driving distances, and would be comparable to the current product. Section II: Relevant Statistical Results Statistic Current Model New Model Sample Mean 270.275 267.500 Standard Error 1…

    • 385 Words
    • 4 Pages
    Good Essays
  • Satisfactory Essays

    PAR Q

    • 500 Words
    • 2 Pages

    A PAR-Q The Physical Activity Readiness Questionnaire PAR Q Form is a personal fitness evaluation of an individual that they normally must fill in so that they are able to participate in physical activity. This is a 1-page form to see if you should check with your doctor before becoming much more physically active. Name: ………………………………………………….. Date: ………………………………………………. Telephone: ……………………………………………………… Date of Birth: ………….. Age: …………… Height: …………… Weight (Lbs): ………………… In case of Emergency contact:…

    • 500 Words
    • 2 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Par, Inc.

    • 494 Words
    • 2 Pages

    Here is the report about Par, Inc., is a major manufacturer of golf equipment test whether the new ball drive longer distance than the current model. To compare the driving distances for the two balls, 40 simple tests both of new and current models were subjected to distance tests. According to the data, we got the information we need for a hypothesis test as follow: | Current | New | Means | 269.42 | 266.67 | Count | 40 | 40 | Standard Deviation | 8.09 | 9.79…

    • 494 Words
    • 2 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Par Argument

    • 702 Words
    • 2 Pages

    Jacob Turner Professor White PAR 101-003 12 February 2015 Argument Paper #1 There has been a long-standing question in the world of philosophy on what determines one’s personal identity. Out of all the attributes that make up the individual, it seems difficult to decipher what actually makes up the personal identity. The most common choices to this question are the mind, the brain, the spirit, or the body. There has yet been no proof on which of these choices are actually correct but many individuals…

    • 702 Words
    • 2 Pages
    Satisfactory Essays