Assume FCFLMNO = $100,000,000 for 2013. The company’s annual growth rate in its FCFs is 5%. The company employs the three major capital components (equity, debt, and preferred stock) to finance itself. The company is targeting a distribution in the three capital components of Ws = 45%, Wd = 45%, Wps = 10%. LMNO’s last period dividend was $4.00. Simultaneously, in the stock market, the E(RM) = 7%, σLMNO,M = 0.0025, and σM = 0.05. Also, RF = 3%. On the preferred stock for LMNO, the Dps = $15.00 and its preferred stock is trading at $150. In thousand dollar units, LMNO’s current 10-year, 10% coupon debt with an annual coupon $100 (i.e. compounded annually) is trading at $887. Finally, LMNO’s τ = 30%. First, find the WACCLMNO? Second, if LMNO is a constant growth perpetuity, estimate its value?
The question belongs to Finance and it is about calculating weighted average cost of capital for a company with an annual growth rate of FCF is 5% and the company is targeting a distribution in three capital components, the value of the company needs to estimated.
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