Debt 25000 bonds outstanding each with a coupon rate of 65


Current information regarding XYZ includes:

Debt: 25,000 bonds outstanding, each with a coupon rate of 6.5% paid semi-annually, par value of $1,000, maturity of 20 years, and current value of 96% of par.

Common Stock: 400,000 shares outstanding with a current value of $89/share. An annual dividend of $4.74 has just been paid, and dividends are expected to grow by 9% annually into the foreseeable future.

Preferred Stock: 35,000 shares of 6.5% stock with a par value of $100/share, and a current value of $99/share.

Tax rate: XYZ's combined tax rate is 34%.

Other liabilities: XZY has the usual accounts payable and accruals on its balance sheet, but does not regularly utilize any interest-bearing debt other than the bonds described above.

Risk Adjustment: Since the new manufacturing facility is to be built overseas, management is suggesting an adjustment factor of +2% to account for the increased riskiness.

Recommend an appropriate discount rate for XZY's proposed venture.

 

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Finance Basics: Debt 25000 bonds outstanding each with a coupon rate of 65
Reference No:- TGS0596265

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