Homework Answers
![Answer to Q#10-3; Before-tax Cost of debt Tax Rate After-tax Cost of debt 5% 35% 3.25% [interest expense on the bonds] [Before-tax Cost of debt x (1-Tax rate) :596x (1-35%-5% x65%-3.25%) Answer to Q#104: Price of Preferred stock Cost of preferred stock Preferred dividend paid $54 5% $2.70 [$54 x 596] Answer to Q#10-a: Using CAPM, Cost of Retained Earnings = Risk-free Rate+ (Beta x Market risk premium) Risk-free Rate Beta Market risk premium Cost of Retained Earnings 196 1.25 796 9.75% 196 + (125 x 796) Answer to Q#10-5b: Return on common Less: Return on a bond Risk Premium 5% -496 1%](http://img.homeworklib.com/questions/36b4a6a0-733a-11ea-8a53-1b0895e52724.png?x-oss-process=image/resize,w_560)
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Comment on whether this is feasible and if not, why not? 10-3 Cost of Debt Calculate...
3- Your company is estimating its WACC. Its target capital structure is 30 percent debt, 10 perce...
3- Your company is estimating its WACC. Its target capital structure is 30 percent debt, 10 percent preferred stock, and 60 percent common equity. Its bonds have an 8 percent coupon, paid quarterly, a current maturity of 15 years, and sell for $895. The firm could sell, at par, $100 preferred stock which pays $10 annual dividend, but flotation costs of 5 incurred if the company will ssue new preferred stocks. This company's beta is 1.3, the risk-free rate is...
Rollins Corporation has a target capital structure consisting of 20% debt, 20% preferred stock, and 60%...
Rollins Corporation has a target capital structure consisting of 20% debt, 20% preferred stock, and 60% common equity. Assume the firm has insufficient retained earnings to fund the equity portion of its capital budget. It has 20-year, 12% semiannual coupon bonds that sell at their par value of $1,000. The firm could sell, at par, $100 preferred stock that pays a 12% annual dividend, but flotation costs of 5% would be incurred. Rollins’ beta is 1.2, the risk-free rate is...
A. Calculate the after-tax cost of debt. b. Calculate the cost of preferred stock. c. Calculate t...
a. Calculate the after-tax cost of debt.
b. Calculate the cost of preferred stock.
c. Calculate the cost of common stock (both retained earnings
and new common stock).
d. Calculate the WACC for Dillon Labs.
Calculation of individual costs and WACC Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights:...
You are an assistant to the CFO and have collected the following data to conduct the...
You are an assistant to the CFO and have collected the following data to conduct the analysis. The company is subjected to a marginal tax rate of 35%. The company can issue a 20-year, 7.6% semi-annual coupon bond at $1,219. New bonds would be privately placed with no floatation cost. The company’s preferred stock currently sells for $30 per share. It pays a fixed dividend of $1.8 per share. The company’s common stock currently sells for $40 per share. The...
You are an assistant to the CFO and have collected the following data to conduct the...
You are an assistant to the CFO and have collected the following data to conduct the analysis. The company is subjected to a marginal tax rate of 35%. The company can issue a 20-year, 7.6% semi-annual coupon bond at $1,219. New bonds would be privately placed with no floatation cost. The company’s preferred stock currently sells for $30 per share. It pays a fixed dividend of $1.8 per share. The company’s common stock currently sells for $40 per share. The...
PROBLEMS 11. (After-tax COST O CARTAL 210 After-tax cost of debt Calculate the after-tax c ode...
PROBLEMS 11. (After-tax COST O CARTAL 210 After-tax cost of debt Calculate the after-tax c ode under each of the following con A tax rate of 37, and a yield to maturity of 754 b. A tax rate 125, and a pre-tax cost of debt of 102 A tax rate of O, and a yield to maturity of 79 After-tax cost of debt) Melbourne, Inc. currently has 3 bonds with a to maturity of in the 35% marginal tax rate,...
10-5a CAPM Appronch Calculate the cost of equity financing given the following Risk-free ratc 1% Market...
10-5a CAPM Appronch Calculate the cost of equity financing given the following Risk-free ratc 1% Market risk premium: 7% 1.25 Beta: 10-5b Bond-Yield-Plus-Risk-Premium Approsch The return on a bond is 4% while the return on common is 5%. What is the risk premium? 10-5e DCE Approach Solve for required return given the following The dividend paid at the beginning of the first time period (Du) was fa/share. The dividend grows in perpetuity at 3.5% (growth rate g). The price of...
Question 18 5 pts The following will be used to answer the next question. Debt: 15,000...
Question 18 5 pts The following will be used to answer the next question. Debt: 15,000 10% coupon bonds outstanding, 30 years to maturity, selling for 106 (bonds have a $1000 par value with semiannual interest payments) Preferred Stock: 20,000 shares of 7% preferred stock outstanding with a par value of $100 and currently selling for $128 per share. Common Stock: 300,000 shares outstanding selling for $80 per share, the beta is 1.5, the risk-free rate is 6% and the...
Calculate the WACC which represents the "hurdle rate" for a typical project with average risk using...
Calculate the WACC which represents the "hurdle rate" for a typical project with average risk using the average of the range of the marginal cost of common equity using retained earnings or new earnings. Data: A 15-year, 12% coupon, semiannual payment non-callable bonds sell for $1,153.72. New bonds will be privately placed with no flotation cost.. A 10%, $1,000 par value, annually dividend, perpetual preferred stock sells for $1,111. Both an existing common stock and a new common stock issue,...
Calculate the WACC which represents the “hurdle rate” for a typical project with average risk using...
Calculate the WACC which represents the “hurdle rate” for a typical project with average risk using the average of the range of the marginal cost of common equity using retained earnings or new earnings. Data: A 15-year, 12% coupon, semiannual payment non-callable bonds sell for $1,153.72. New bonds will be privately placed with no flotation cost. A 10%, $1,000 par value, annually dividend, perpetual preferred stock sells for $1,111. Both an existing common stock and a new common stock...
3- Your company is estimating its WACC. Its target capital structure is 30 percent debt, 10 percent preferred stock, and 60 percent common equity. Its bonds have an 8 percent coupon, paid quarterly, a current maturity of 15 years, and sell for $895. The firm could sell, at par, $100 preferred stock which pays $10 annual dividend, but flotation costs of 5 incurred if the company will ssue new preferred stocks. This company's beta is 1.3, the risk-free rate is...
a. Calculate the after-tax cost of debt.
b. Calculate the cost of preferred stock.
c. Calculate the cost of common stock (both retained earnings
and new common stock).
d. Calculate the WACC for Dillon Labs.
Calculation of individual costs and WACC Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights:...
PROBLEMS 11. (After-tax COST O CARTAL 210 After-tax cost of debt Calculate the after-tax c ode under each of the following con A tax rate of 37, and a yield to maturity of 754 b. A tax rate 125, and a pre-tax cost of debt of 102 A tax rate of O, and a yield to maturity of 79 After-tax cost of debt) Melbourne, Inc. currently has 3 bonds with a to maturity of in the 35% marginal tax rate,...
10-5a CAPM Appronch Calculate the cost of equity financing given the following Risk-free ratc 1% Market risk premium: 7% 1.25 Beta: 10-5b Bond-Yield-Plus-Risk-Premium Approsch The return on a bond is 4% while the return on common is 5%. What is the risk premium? 10-5e DCE Approach Solve for required return given the following The dividend paid at the beginning of the first time period (Du) was fa/share. The dividend grows in perpetuity at 3.5% (growth rate g). The price of...
Question 18 5 pts The following will be used to answer the next question. Debt: 15,000 10% coupon bonds outstanding, 30 years to maturity, selling for 106 (bonds have a $1000 par value with semiannual interest payments) Preferred Stock: 20,000 shares of 7% preferred stock outstanding with a par value of $100 and currently selling for $128 per share. Common Stock: 300,000 shares outstanding selling for $80 per share, the beta is 1.5, the risk-free rate is 6% and the...
Calculate the WACC which represents the "hurdle rate" for a typical project with average risk using the average of the range of the marginal cost of common equity using retained earnings or new earnings. Data: A 15-year, 12% coupon, semiannual payment non-callable bonds sell for $1,153.72. New bonds will be privately placed with no flotation cost.. A 10%, $1,000 par value, annually dividend, perpetual preferred stock sells for $1,111. Both an existing common stock and a new common stock issue,...
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