The ADJO Prison Corporation desires to obtain a monetary amount of $135 million to finance its acquisition of a new site. It is anticipated that this funding will be obtained from external sources. ADJO is a for-profit prison entity whose stock is traded openly and that has issued bonds. Therefore, ADJO is financed with both equity and debt. Further, ADJO is affected by market rates of return regard- ing both debt and equity. Assume a 12% rate for preferred stock, a
Table 8.6: Opportunity Cost Problem Values
|
Candidate Initiative
|
Expected Rate of Return
|
Project Cost
|
|
New uniforms
|
12.25%
|
$82,323.44
|
|
New cars
|
9.30%
|
$175,363.55
|
|
Training academy
|
13.30%
|
$245,899.22
|
|
Investigator school
|
7.93%
|
$222,356.32
|
|
Youth summer camp
|
9.14%
|
$262,758.25
|
|
Aviation maintenance
|
14.25%
|
$193,222.55
|
|
Canine unit
|
8.26%
|
$98,225.00
|
|
New personnel
|
10.45%
|
$198,559.00
|
|
Administrative support
|
14.33%
|
$150,000.00
|
15% rate for common stock, and a 9.00% rate for debt. ADJO has 6,750,020 shares of preferred stock outstanding that sell for $80.00 per share. A quantity of 91,560,000 common stock shares is out- standing, and these shares sell for $22.00 per share. The face value amount of bond debt is $842,681,000.00. AJDO bonds sell for 1.93 (percent of par). The effects of taxation involve a 40.00% tax rate.
Based on the given data, answer the following questions:
1. What is the market value of ADJO's preferred stock?
2. What is the market value of ADJO's common stock?
3. What is the market value of ADJO's debt?
4. What are ADJO's market share percentages of preferred stock, common stock, and debt?
5. What is ADJO's WACC value?
6. Based on the above calculations, what is the MARR value?