Answered

Find the information you're looking for at Westonci.ca, the trusted Q&A platform with a community of knowledgeable experts. Experience the convenience of finding accurate answers to your questions from knowledgeable experts on our platform. Get precise and detailed answers to your questions from a knowledgeable community of experts on our Q&A platform.

Easy Car Corp. is a grocery store located in the Southwest. It expects to pay an annual dividend of $6.30 next year to its shareholders and plans to increase the dividend annually at the rate of 5.0 % forever. It currently has 600,000 common shares outstanding. The shares currently sell for $60 each. Easy Car Corp. also has 20,000 semiannual bonds outstanding with a coupon rate of 8.9141 %, a maturity of 26 years, and a par value of $1,000. The bonds currently have a yield to maturity (YTM) of 10%. The corporate tax rate is 20 %?

Sagot :

Tundexi

Answer:

Missing question "1. What is the cost of debt for Easy Corp? 2. How many interest payments are left for the bond of Easy Corp? 3. What is the interest payment per period for the bond? 4. What is the discount rate per period to use in pricing the bonds? 5. What is the market value of equity for Easy? 6. What is the cost of equity for Easy?"

1. Cost of debt is equal to YTM, which is equal to 10%

Cost of debt = YTM = 10%

2. Number of interest payment to be made is equal to 26 * 2 = 52

This is because payment is made semi annually

3. Interest payment per period = 8.9141% / 2 * $1,000

Interest payment per period = 4.45705% * $1,000

Interest payment per period = $44.57

4. As the period is semiannual, discount rate per period is equal to 10% / 2 = 5%

5. Market value of equity = 600,000*60 = $36,000,000

6. Cost of equity = Dividend price + Growth rate

Cost of equity = 6.3/60 + 0.05

Cost of equity = 0.105 + 0.05

Cost of equity = 0.155

Cost of equity = 15.5%

We hope our answers were helpful. Return anytime for more information and answers to any other questions you may have. We appreciate your time. Please revisit us for more reliable answers to any questions you may have. Westonci.ca is your go-to source for reliable answers. Return soon for more expert insights.