Question

a. A bond that has ​$1 000 par value​ (face value) and a contract or coupon interest rate of 6 percent. A new issue would have a floatation cost of 8 percent of the ​$ 1,110 market value. The bonds mature in 8 years. The​ firm's average tax rate is 30 percent and its marginal tax rate is 36 percent.

b. A new common stock issue that paid a ​$ 1.40 dividend last year. The par value of the stock is​ $15, and earnings per share have grown at a rate of 9 percent per year. This growth rate is expected to continue into the foreseeable future. The company maintains a constant​ dividend-earnings ratio of 30 percent. The price of this stock is now ​$ 29​, but 8 percent flotation costs are anticipated.

c. Internal common equity when the current market price of the common stock is ​$51. The expected dividend this coming year should be ​$ 3.40​, increasing thereafter at an annual growth rate of 8 percent. The​ corporation's tax rate is 36 percent.

d. A preferred stock paying a dividend of 9 percent on a ​$110 par value. If a new issue is​ offered, flotation costs will be 11 percent of the current price of ​$175.

e. A bond selling to yield 12 percent after flotation​ costs, but before adjusting for the marginal corporate tax rate of 36 percent. In other​ words, 12 percent is the rate that equates the net proceeds from the bond with the present value of the future cash flows​ (principal and​ interest).

Answer 1

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ke - Microsoft Excel (Product Activation Failed) Review File Home Insert Page Layout Formulas Data View Add-Ins Σ AutoSum - Cut AC EWrap Text Calibri 11 General ECopy Fill в IU Merge & Center $ % Paste +.0 .00 .00 0 Conditional Format Cell Insert Delete Format Sort & Find & Format Painter Clear Filter Select Formatting as Table Styles Clipboard Font Alignment Number Styles Cells Editing fox BU210 ВТ BU ВР BQ BR BS BV BW ВХ BY 210 COMPONENT PAR VALUE 1000 211 а 6% 212 COUPON RATE COUPON (S) 213 60 1021.20 1110* (1-8%)] PRICE 214 YEARS 215 8 216 PERIODS 2 217 36% 218 MARGINAL TAX RATE = 2.8334% [=RATE(BU215*BU216,-BU213/BU216,BU214,-BU211)] YTM (SEMI ANNUAL) 219 YTM (ANNUAL) 5.6667% 220 COST OF DEBT (AFTER TAX) 3.63% [5.667%*(1-0.36)] 221 222 223 DO 1.40, g 9% f flotation cost 8% D1 D0* (1+g) 1.40*(1+0.09) b 224 225 226 1.526 29 227 PO D1/P0(1-f) + g ke 228 14.72% [cost of external common equityl ke 1.526/(29(1-0.08)) 0.09 = 229 230 UTILITY, SHARPE, beta DGM beta INTL CAP BUD LEASING PV, FV, ANNUITY YIELD bond portfolio RI КЕ САРМ clean port future INDEX DIR right coNvexity SANDRINE WACC II (+ Rea erences: KN82 120% XУ WA 09:58 ENG 25-11-2019

ke - Microsoft Excel (Product Activation Failed) Review File Home Insert Page Layout Formulas Data View Add-Ins Σ AutoSum - Cut AC Wrap Text Calibri 11 General Copy Fill в IU Merge & Center Paste +.0 .00 .00 0 Conditional Format Cell Insert Delete Format Sort & Find & % Format Painter Clear Filter Select Formatting as Table Styles Clipboard Font Alignment Number Styles Cells Editing fox BU249 Formula Bar В- BS BY ВР BQ BR ВТ BU BV BW 230 D1 231 3.4 C 8% 232 g 233 PO 51 ke D1/POg ke 3.4/510.08 = 234 14.67% [cost of internal common equity] 235 236 d 237 COST OF PREFERRED STOCK 9.9 [110 X 9% 238 DIVIDEND f 11% FLOTATION COST 239 PRICE 240 175 kp DIVIDEND/(PRICE -f) 241 kp 9.9/(175(1-0.11)) = 6.36% 242 243 After tax cost of debt 12% (1-0.36) 7.68% 244 е 245 246 247 248 249 AC DRCCCRRED CTOCKc ARE NOTTAV DCDUCTTIDIC UKE DERT DGMbetaport future INDEXINTL CAP BUD UTILITY, SHARPE, beta CONvexity RI LEASING PV, FV, ANNUITY clean КЕ САРМ YIELD bond portfolio DIR right SANDRINE WACC erences: GW40 II Rea 120% + Xу WA 10:01 ENG 25-11-2019