Respuesta :
24.43% is the MV weight of Debt JFG would use in their WACC calculation.
As per the given data,
we need to find out the MV weight of Debt JFG would use in their WACC calculation.
According to question,
it is given that,
JFG, Inc. has the following capital structure:
1. 9.4 million shares of common stock priced at $28.12/share
2. 3 million shares of preferred stock that pays a 6.7% dividend (par value = $100) and is currently priced at $101/share
3. 200,000 outstanding bonds.
Also, it is given that the bonds mature in 10 years, have a par (face) value of $1,000, a 7% annual coupon, and a yield to maturity of 8.25%.
Now, Market Value of each capital Structure
Market Value of Debt = 183,412,000 [200,000 Bonds x 917.06 per bond]
Market Value of Preferred Stock = 303,000,000 [3,000,000 shares x 101 per share]
Market Value of Equity = 264,328,000 [9,400,000 shares x 28.12 per share]
Total Market Value is 750,740,000
Price of the Bond
The Equity Price is the Current Earnings Rate plus the Face Value/Par Value. The Bond Price is calculated by using Excel Functions or by using a Financial Calculator.
Now,, the calculation of the Bond Price using financial calculator can be given as follows:
Variables Financial Calculator Figures
Face Value [-S1,000] FV 1000
Coupon Amount [S1,000 x 7%] PMT 70
Market Interest Rate
or Required Rate of Return [8.25%] 1/Y 8.25
Time to Maturity [10 Years] N 10
Bond Price PV ?
Further, we need to set the above keywords in the billing to find out the Combined Price. After entering the above keys into the financial calculator, we get:
Bond Price = $917.06
The weight of Debt to be used in the WACC Calculation can be given as:
Weight of Debt = Market Value of Debt / Total Market Value
By Putting values in above formula, we get:
= 183,412,000 / 750,740,000
= 0.2443 or
= 24.43%
Therefore, 24.43% is the MV weight of Debt JFG would use in their WACC calculation.
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