Naples Electronics Inc
Naples Electronics Inc: balance Sheet for the year ending 2004
(In millions of dollars)
Cash and securities $ 2.1 Accounts Payable $ 1.2
Accounts Receivable 10.1 Accruals 1.5
Inventory 2.6 Notes Payable .5 Total Current Assets $ 14.8 Total Current Liabilities 3.2
Net Fixed Assets 29.1 Long-term Debt 15.0 Preferred Stock 4.0 Common Stock 1.0 Retained Earnings 20.7
Total Assets 43.9 Total Liabilities & Equity 43.9
The following data was also provided:
1) The company’s long-term debt consists entirely of a 7% semiannual bond with a maturity date of 2039. The bonds last trading price was $1,098.83 per $1,000.00 bond. The bonds are not callable.
2) In conversation with the owners, it was emphasized that short term debt was NOT an option.
3) The company’s federal plus state tax rate is 34%.
4) The company’s preferred stock pays a $2.00 dividend per quarter. It is non-callable and has a current market price of $76.20. Flotation cost on a new issue would be 10%.
5) The firm’s last dividend was $1.51 per share. The dividends are expected to grow at a 4% annual rate for the foreseeable future. Naple’s stock current market price is $12.50 per share. The par value is $1.00 per share. Flotation cost on a new issue would be 12%.
6) Information from a market investment firm gives the firm’s historical beta at 2.3. The investment banking firm also informed you that government T-Notes are expected to have a return of 6%. There is a 5% as the market risk premium.
7) The company wishes to retain the current capital structure for the foreseeable future.
2) What are the weights (at the company’s current market value) for each of the components that should be included?
Historical Market Value
Current Market Value
Total
Bonds
15,000,000
1,098.83 bond 16,482,450.00
P-Stock
4,000,000
76.20 share 3,048,000.00
C-Stock
1,000,000
12.50
share
(In millions of dollars)
Cash and securities $ 2.1 Accounts Payable $ 1.2
Accounts Receivable 10.1 Accruals 1.5
Inventory 2.6 Notes Payable .5 Total Current Assets $ 14.8 Total Current Liabilities 3.2
Net Fixed Assets 29.1 Long-term Debt 15.0 Preferred Stock 4.0 Common Stock 1.0 Retained Earnings 20.7
Total Assets 43.9 Total Liabilities & Equity 43.9
The following data was also provided:
1) The company’s long-term debt consists entirely of a 7% semiannual bond with a maturity date of 2039. The bonds last trading price was $1,098.83 per $1,000.00 bond. The bonds are not callable.
2) In conversation with the owners, it was emphasized that short term debt was NOT an option.
3) The company’s federal plus state tax rate is 34%.
4) The company’s preferred stock pays a $2.00 dividend per quarter. It is non-callable and has a current market price of $76.20. Flotation cost on a new issue would be 10%.
5) The firm’s last dividend was $1.51 per share. The dividends are expected to grow at a 4% annual rate for the foreseeable future. Naple’s stock current market price is $12.50 per share. The par value is $1.00 per share. Flotation cost on a new issue would be 12%.
6) Information from a market investment firm gives the firm’s historical beta at 2.3. The investment banking firm also informed you that government T-Notes are expected to have a return of 6%. There is a 5% as the market risk premium.
7) The company wishes to retain the current capital structure for the foreseeable future.
2) What are the weights (at the company’s current market value) for each of the components that should be included?
Historical Market Value
Current Market Value
Total
Bonds
15,000,000
1,098.83 bond 16,482,450.00
P-Stock
4,000,000
76.20 share 3,048,000.00
C-Stock
1,000,000
12.50
share