FIN special 3

Granite Works maintains a debt-equity ratio of .58 and has a tax rate of 21 percent. The pretax cost of debt is 8.9 percent. There are 18,000 shares of stock outstanding with a beta of 1.42 and a market price of $23 per share. The current market risk premium is 7.8 percent and the current risk-free rate is 3.1 percent. This year, the firm paid an annual dividend of $1.68 per share and expects to increase that amount by 2 percent each year. Using an average expected cost of equity, what is the weighted average cost of capital? 8.44% 9.78% 8.96% 9.13% 10.06%

10.06%

Kelley Couriers just paid its annual dividend of $5.25 per share. The stock has a market price of $58.25 and a beta of 1.2. The return on the U.S. Treasury bill is 1 percent and the market risk premium is 8.5 percent. What is the cost of equity? 8.8% 10.0% 10.2% 8.5% 11.2%

11.2%

The Shoe Outlet has paid annual dividends of $.58, $.66, $.72, and $.75 per share over the last four years, respectively. The stock is currently selling for $10.08 per share. What is the cost of equity? 18.74% 17.13% 10.38% 19.53% 11.79%

17.13%

Decline, Incorporated, is trying to determine its cost of debt. The firm has a debt issue outstanding with 13 years to maturity that is quoted at 105.2 percent of face value. The issue makes semiannual payments and has an embedded cost of 6 percent annually. What is the aftertax cost of debt if the tax rate is 21 percent? 4.30% 4.92% 4.17% 5.43% 5.58%

4.30%

During the past five years, KwonCo.'s stock earned annual returns of 7 percent, 13 percent, 19 percent, −8 percent, and 15 percent. Suppose the average inflation rate over this time period was 2.6 percent and the average T-bill rate was 3.1 percent. Based on this information, what was the average nominal risk premium? 6.6% 6.1% 9.2% 1.2% 3.5%

6.1%

AZ Products has 140,000 shares of common stock outstanding at a market price of $27 per share. Next year's annual dividend is expected to be $1.43 per share and the dividend growth rate is 2 percent. The company also has 2,500 bonds outstanding with a face value of $1,000 per bond. The bonds have a pretax yield of 7.35 percent and sell at 98.2 percent of face value. The company's tax rate is 21 percent. What is the weighted average cost of capital? 8.41% 6.71% 7.52% 6.58% 6.59%

6.71%

Deep Mines has 43,800 shares of common stock outstanding with a beta of 1.54 and a market price of $51 per share. There are 10,000 shares of 7 percent preferred stock outstanding with a stated value of $100 per share and a market value of $83 per share. The 8 percent semiannual bonds have a face value of $1,000 and are selling at 96 percent of par. There are 5,000 bonds outstanding that mature in 13 years. The market risk premium is 7.5 percent, T-bills are yielding 3.6 percent, and the tax rate is 21 percent. What discount rate should the firm apply to a new project's cash flows if the project has the same risk as the company's typical project? 9.59% 8.72% 9.17% 8.28% 9.30%

9.30%