Homework Answers
Ke= D1/P0*100+G
(3.75/50)*100+6
7.5+6= 13.5% Ans
17) In such case i.e. in case of new product development project the revelant discount rate would be WACC
18) Relevant discount rate in case of cost saving project would be WACC+8%
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Practice Assignment #8
Question 16 (1 point) MICH Corporation has its common stock selling for $50/share...
1. XYZ Company’s stock is selling for $22.50 per share. It has just announced that it...
1. XYZ Company’s stock is selling for $22.50 per share. It has just announced that it will pay a $1.35 dividend later this year. Dividends are expected to grow 4.5% per year in the future. What rate of return are investors expecting to earn with an investment in XYZ? 2. Company J expects to have free cash flow (FCF) this year of $1,000,000. FCF is expected to grow at a constant rate of 3%. If company J has an 8%...
Question 19 Colemans common stock is currently selling for $50 share. Its last dividend (Do) was...
Question 19 Colemans common stock is currently selling for $50 share. Its last dividend (Do) was $4.19; and dividends are expected to grow at a constant rate of 5 percent in the foreseeable future. Coleman estimates that if it issues new common stock, the flotation cost will be 10 percent. Coleman incorporates the flotation costs into the DCF approach. What is the estimated cost of newly issued common stock, considering the flotation cost?
Javits & Sons' common stock currently trades at $33.00 a share. It is expected to pay an annual dividend of $1.25 a...
Javits & Sons' common stock currently trades at $33.00 a share. It is expected to pay an annual dividend of $1.25 a share at the end of the year (D1 = $1.25), and the constant growth rate is 4% a year. A) What is the company's cost of common equity if all of its equity comes from retained earnings? Round your answer to two decimal places. % B) If the company were to issue new stock, it would incur a...
2. Summerdahl Resort's common stock is currently trading at $36.00 a share. The stock is expected...
2. Summerdahl Resort's common stock is currently trading at $36.00 a share. The stock is expected to pay a dividend of $2.50 a share at the end of the year (D1 = $2.50), and the dividend is expected to grow at a constant rate of 4% a year. What is the cost of common equity? Round your answer to two decimal places. 3. Booher Book Stores has a beta of 1.1. The yield on a 3-month T-bill is 4.5% and...
WACC and optimal capital budget Adamson Corporation is considering four average-risk projects with the following costs...
WACC and optimal capital budget Adamson Corporation is considering four average-risk projects with the following costs and rates of return: Project Cost Expected Rate of Return $2,000 16.00% 3,000 15.00 5,000 13.75 2,000 12.50 The company estimates that it can issue debt at a rate ofre -10%, and its tax rate is 30%. It can issue preferred stock that pays a constant dividend of $4 per year at $42 per share. Also, its common stock currently sells for $37 per...
Problem 10-18 WACC and optimal capital budget Adamson Corporation is considering four average-risk projects with the...
Problem 10-18 WACC and optimal capital budget Adamson Corporation is considering four average-risk projects with the following costs and rates of return: Project Cost Expected Rate of Return $2,000 16.00% 3,000 15.00 5,000 13.75 2,000 12.50 The company estimates that it can issue debt at a rate of ra = 9%, and its tax rate is 30%. It can issue preferred stock that pays a constant dividend of $6 per year at $40 per share. Also, its common stock currently...
Adamson Corporation is considering four average-risk projects with the following costs and rates of return: Project...
Adamson Corporation is considering four average-risk projects with the following costs and rates of return: Project Cost Expected Rate of Return 1 $2,000 16.00% 2 3,000 15.00 3 5,000 13.75 4 2,000 12.50 The company estimates that it can issue debt at a rate of rd = 10%, and its tax rate is 30%. It can issue preferred stock that pays a constant dividend of $4 per year at $51 per share. Also, its common stock currently sells for $33...
Question 4 1 pts XYZ Company stock currently sells for $38.31 per share. The company is...
Question 4 1 pts XYZ Company stock currently sells for $38.31 per share. The company is expected to pay a dividend of $2.45 per share next year, and analysts project that dividends should increase at 3.14 percent per year for the indefinite future. What must the relevant discount rate (in percent) be for XYZ stock? Answer to two decimals.
Problem 5: (30 points) Stox Corporation has 125,000 shares of common stock outstanding at a market...
Problem 5: (30 points) Stox Corporation has 125,000 shares of common stock outstanding at a market price of $55 per share. The firm has also 50,000 bonds outstanding, paying a 7.5% coupon $100 each, and currently selling at 93 percent of par value. The current yield to maturity on those bonds is 7.0% (pre-tax cost of debt) The tax rate paid by the company is 35%. rate, with a face value of tha The beta of the company's stock is...
WACC AND OPTIMAL CAPITAL BUDGET Adamson Corporation is considering four average-risk projects with the following costs...
WACC AND OPTIMAL CAPITAL BUDGET Adamson Corporation is considering four average-risk projects with the following costs and rates of return: Project Cost Expected Rate of Return 1 $2,000 16.00% 2 3,000 15.00 3 5,000 13.75 4 2,000 12.50 The company estimates that it can issue debt at a rate of rd = 10%, and its tax rate is 30%. It can issue preferred stock that pays a constant dividend of $5 per year at $54 per share. Also, its common...
Question 19 Colemans common stock is currently selling for $50 share. Its last dividend (Do) was $4.19; and dividends are expected to grow at a constant rate of 5 percent in the foreseeable future. Coleman estimates that if it issues new common stock, the flotation cost will be 10 percent. Coleman incorporates the flotation costs into the DCF approach. What is the estimated cost of newly issued common stock, considering the flotation cost?
WACC and optimal capital budget Adamson Corporation is considering four average-risk projects with the following costs and rates of return: Project Cost Expected Rate of Return $2,000 16.00% 3,000 15.00 5,000 13.75 2,000 12.50 The company estimates that it can issue debt at a rate ofre -10%, and its tax rate is 30%. It can issue preferred stock that pays a constant dividend of $4 per year at $42 per share. Also, its common stock currently sells for $37 per...
Problem 10-18 WACC and optimal capital budget Adamson Corporation is considering four average-risk projects with the following costs and rates of return: Project Cost Expected Rate of Return $2,000 16.00% 3,000 15.00 5,000 13.75 2,000 12.50 The company estimates that it can issue debt at a rate of ra = 9%, and its tax rate is 30%. It can issue preferred stock that pays a constant dividend of $6 per year at $40 per share. Also, its common stock currently...
Question 4 1 pts XYZ Company stock currently sells for $38.31 per share. The company is expected to pay a dividend of $2.45 per share next year, and analysts project that dividends should increase at 3.14 percent per year for the indefinite future. What must the relevant discount rate (in percent) be for XYZ stock? Answer to two decimals.
Problem 5: (30 points) Stox Corporation has 125,000 shares of common stock outstanding at a market price of $55 per share. The firm has also 50,000 bonds outstanding, paying a 7.5% coupon $100 each, and currently selling at 93 percent of par value. The current yield to maturity on those bonds is 7.0% (pre-tax cost of debt) The tax rate paid by the company is 35%. rate, with a face value of tha The beta of the company's stock is...
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