If Blue’s is evaluating a new investment project that has the same risk as the firm’s typical project, what rate should it use to discount the project’s cash flow?

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Learning Goal: I’m working on a finance discussion question and need an explanation and answer to help me learn.Q7-1: Finding the WACCBlue Corp has $5 million shares of common stock outstanding, 750,000 shares of 7% preferred stock outstanding, and 250,000 11% semi-annual bonds outstanding, par value $1,000 each. The stock sells for $40 per share and has a beta of 1.3, the preferred stock currently sells for $75 per share, and the bonds have 15 years to maturity and sell for 93.5% of par. The market risk premium is 6%, T-bills are yielding 4%, and Blue’s tax rate is 35%.What is the firm’s market value capital structure?
If Blue’s is evaluating a new investment project that has the same risk as the firm’s typical project, what rate should it use to discount the project’s cash flow?
Q7-2 AAPLGo to Yahoo Finance and look up the information for Apple Inc. (AAPL), a specialty company that designs, manufactures, and markets smartphones, personal computers, tablets, wearables, and accessories worldwide. You want to estimate the cost of equity for the company. First, find the current Treasury bill rate. Next, find the beta for AAPL. Using the historical market risk premium, what is the estimated cost of equity for AAPL using the CAPM? Now, find the analysts’ growth rate estimates for the next five years for the company. Using this growth rate in the dividend growth model, what is the estimated cost of equity? Now find the dividends paid by the company over the past five years and calculate the arithmetic and geometric growth rates in dividends. Using these growth rates, what is the estimated cost of equity? Looking at these four estimates, what cost of equity would you use for the company?New assignment hereAssignment DescriptionThis assignment requires you to answer a series of questions. Q7-1 and 2. Answer all questions, perform all calculations and submit in one Excel Spreadsheet.Assignment RequirementAnswer the following questions:Q7-1: Finding the WACCBlue Corp has $5 million shares of common stock outstanding, 750,000 shares of 7% preferred stock outstanding, and 250,000 11% semi-annual bonds outstanding, par value $1,000 each. The stock sells for $40 per share and has a beta of 1.3, the preferred stock currently sells for $75 per share, and the bonds have 15 years to maturity and sell for 93.5% of par. The market risk premium is 6%, T-bills are yielding 4%, and Blue’s tax rate is 35%.What is the firm’s market value capital structure?
If Blue’s is evaluating a new investment project that has the same risk as the firm’s typical project, what rate should it use to discount the project’s cash flow?
Q7-2 AAPLGo to Yahoo Finance and look up the information for Apple Inc. (AAPL), a specialty company that designs, manufactures, and markets smartphones, personal computers, tablets, wearables, and accessories worldwide. You want to estimate the cost of equity for the company. First, find the current Treasury bill rate. Next, find the beta for AAPL. Using the historical market risk premium, what is the estimated cost of equity for AAPL using the CAPM? Now, find the analysts’ growth rate estimates for the next five years for the company. Using this growth rate in the dividend growth model, what is the estimated cost of equity? Now find the dividends paid by the company over the past five years and calculate the arithmetic and geometric growth rates in dividends. Using these growth rates, what is the estimated cost of equity? Looking at these four estimates, what cost of equity would you use for the company?new assignment hereValuing Stocks and Bonds3 of 3Assignment DescriptionThis assignment requires you to answer a series of questions. Q5-1, 2, and 3. Answer all questions, perform all calculations and submit in one Excel Spreadsheet.Assignment RequirementAsAnswer the following questions:Q5-1Barret Connelly and Danny Ferris, the owners of LynnU Inc. have decided to expand their operations. They have instructed their newly hired financial analyst, Brett Clulow to enlist an underwriter to help sell $100 million in new 10-year bonds to finance the new construction. Brett has entered into discussion with Michelle Tolsma, an underwriter from the firm Fighting Knights, about which bond features LynnU Inc. should consider and what coupon rate the issue will likely have.Although Brett is aware of the bond features, he is uncertain as to the costs and benefits of some features, so he isn’t clear on how each feature would affect the coupon rate of the bond issue. You are Michelle’s assistant, and she has asked you to prepare a memo to Brett describing the effect of each of the following bond features on the coupon rate of the bond. She also would like you to list any advantages or disadvantages of each feature.Please address the following in Memo format:The security of the bond: whether the bond has collateral.
The seniority of the bond.
The presence of a sinking fund.
A call provision with specified call dates and call prices.
A deferred call accompanying the preceding call provision.
A make-whole call provision.
Any positive covenants: discuss several possible positive covenants LynnU Inc. might consider.
Any negative covenants: discuss several possible negative covenants LynnU Inc. might consider.
A conversion feature (note that LynnU Inc. is NOT a publicly traded company).
A floating-rate coupon.
Q5-2MEGG Inc. just paid a dividend of $2.00 per share on its stock. The dividends are expected to growth at a constant 6 percent per year indefinitely. If investors require a 13 percent return on the stock, what is the current price? What will the price be in 3 years? In 15 years?Q5-3BrainSoft has 12% coupon bonds on the market with 9 years to maturity. The bonds make semi-annual payments and currently sell for 110% of par. What is the current yield on the bonds? The yield to maturity? The effective annual yield?
Requirements: Complete 3 excel files   |   .xls file

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