FIN 620 Homework Assignment 6
Problem 20-14 Rights
Summit Corp.’s stock is currently selling at $32 per share. There are 1 million shares outstanding. The firm is planning to raise $2 million to finance a new project. What are the exrights stock price, the value of a right, and the appropriate subscription prices under the following scenarios?
Problem 18-4 WACC
If Wild Widgets, Inc., were an allequity company, it would have a beta of .85. The company has a target debt–equity ratio of .40. The expected return on the market portfolio is 11 percent, and Treasury bills currently yield 4 percent. The company has one bond issue outstanding that matures in 20 years and has a coupon rate of 7 percent. The bond currently sells for $1,080. The corporate tax rate is 34 percent.
Problem 21-14 Lease or Buy
Wolfson Corporation has decided to purchase a new machine that costs $3.2 million. The machine will be depreciated on a straightline basis and will be worthless after four years. The corporate tax rate is 35 percent. The Sur Bank has offered Wolfson a fouryear loan for $3.2 million. The repayment schedule is four yearly principal repayments of $800,000 and an interest charge of 9 percent on the outstanding balance of the loan at the beginning of each year. Both principal repayments and interest are due at the end of each year. Cal Leasing Corporation offers to lease the same machine to Wolfson. Lease payments of $950,000 per year are due at the beginning of each of the four years of the lease.
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