MGMT 2023-Reference is made to the 2015 Balance Sheet of Southwest limited

MGMT 2023-Reference is made to the 2015 Balance Sheet of Southwest limited

Subject: Business / Finance
Question
9. Reference is made to the 2015 Balance Sheet of Southwest limited.

Southwest Limited Balance Sheet 2015

Cash 1,000,000.00 Accounts Payable 8,000,000.00

Acc. Receivable 12,000,000.00 Notes Payable 8,500,000.00

Marketable securities 3,000,000.00 Long-term Debt 20,000,000.00

Inventories 7,500,000.00 Common stock 7,500,000.00

Fixed Assets 26,500,000.00 Preferred Stock 6,000,000.00

Total Assets 50,000,000.00 Total Liabilities and Equity 50,000,000.00

Additional Information:

i. The Long-Term debt consists of 8% annual coupon bonds, with 15 years to

maturity and are currently selling for 95% of par.

ii. The company’s common shares which have a book value of $20 per share are

currently selling at $25 per share.

iii. Preferred shares have a book value of $100 per share. These shares are currently

selling at $120 per share and pays dividends of 6% per annum.

iv. The dividend growth rate is expected to be 3%, and dividend for 2016 is projected

to be $5.00 per share.

v. The Company’s Tax rate is 30%.

Required:

Determine the following for Southwest Limited:

(a) Total Market value of the firm’s capital structure

(b) After-tax Cost of Debt

(c) Cost of Common Stock

(d) Cost of Preferred Stock

(e) WACC