Cost of Capital Project the PETCO Animal Supplies
...treat the cost of capital the same in both bond and operating lease. 7. I assume that the same tax rate applies to both 2003 and 2004. 8. The expecting return is assumed to be equal to its earning growth rate. Calculation An examination of the balance sheet reveals that Petco has long-term debt and common stock equity. All the previously issued prefer stocks have been redeemed and none of them is outstanding as of April, 2004. Even though the 2004 financial report has not yet been released, I assume that all the information enclosed as in the schedule, and no major changes have occurred during the period. I. Find the component market value Equity: common stocks Price = 28.65 [source: NASDQA] # of share = 57,473,000 [source: NASDQA] E= Po X number of share = $1,646,601,450 Term loans: senior subordinated notes Outstanding: $140,790,000 [source: Mergent online] Interest rate: 3.67% [source: Mergent online] Current due: 1,400,000 Assumptions 1 Remain balance: 139,400,000 139,400,000 X (1+.0367) ^8 = 147,049,422.30 Assumption 2 B1=1,400,000+147,049,422.30=148,449,422.30 Securitized Debt: senior subordinated notes [source: Mergent bond record] Authorized: 200,000,000 Outstanding: 120,000,000-Feb, 2003 Assumption 3 Due: Nov, 2011 Interest rate: 10.75% B2=53,018,979 B1+B2 =148,449,422.30+53,018,979 =201,468,401.30 Lease Capital lease [source: Mergent online] L1=2,608,000 Assumption 4 Operating lease Payment schedule of operating lease [source: 2003 financial report] Rate=10.75% Assumption 5 & Assumption 6 L2=253,277,000X PV (10.75%, 1) +208,900,000X PV (10.75%, 2) +474,080,000X PV (10.75%, 3) L2=747,378,775 Total ...