Finance ch 12 connect

Further from center has 10,100 share of common stock.... 11,200-$46-265-$88-620-6.5%-27yrs-$1,000-107% here I sit sofas

.0214 Ans 2: .0194

Bethesda water has an issue of preferred stock outstanding with a coupon rate of 4.60 percent that sells for $92.14 per share. If the par value is $100, what is the cost of the company's preferred stock? 4.3%-$91.18-$100

4.60/92.14= 4.99% Ans 2: 4.3/91.18=.0472 or 4.72%

Sixth fourth bank has an issue of preferred stock with a $6.90 stated dividend that just sold for $89 per share. What is the bank's cost of preferred stock?

6.90/89=.0775 or 7.75%

Here I sit sofas has 7,900 shares of common stock outstanding at a price of $102 per share. There are 920 bonds that mature in 38yrs with a coupon rate of 7.6 percent paid semiannually. The bonds have a par value of $2,000 each and sell at 112.5 percent of par. The company also has 6,800 shares of preferred stock outstanding at a price of $55 per share. What is the capital structure weight of the debt? Q2: 6,200-$85-790-21yrs-5.9%-$1,000-95%-$5,100-$38 Q3: 7,600-$99-800-35yrs-7.3%-$2,000-111%-6,500-$52 Q5: 7,500-$98-760-34yrs-7.2%-$2,000-110.5%-6,400-$51 Kim's bridal shoppe has 11,900-53-300-93-350-7.2-34-2,000-110.5

7,900(120)=805,800 6,800(55)=374,000 920(2000)1.125=2,070,000 Total=3,249,800 2,070,000/3,249,800=.6370 Ans 2: .5101 Ans 3: .6196 Ans 4: .6128 Ans 5: .4404

Ace industrial machines issued 149,000 zero coupon bonds six years ago. The bonds have a par value of $1,000 and original had 30 years to maturity with a yield to maturity of 7.4 percent. Interest rates have recently increased, and the bonds now have a yield to maturity of 8.5 percent. What is the dollar price of the bonds? What is the market value of the company's debt? If the company has a $46.4 million market value of equity, what weight should it use for debt when calculating the cost of capital? Q2: 138,000-$1,000-30yrs-6.8%-8.4%-$45.3million Q3: 141,000- 6yrs-$1,000-30yrs-7.1%-8.2%-$45.6 million

Bond price: 1,000/[1 + (.085/2)]48= $135.63 Market price: 149,000(135.63)=20,208,552.80 Weight of debt: 20,208,552.80 + 46,400,000= 66,608,552.80 20,208,552.80/66,608,552.80=.3034 Ans 2: bond price: 150.69 Market value: $20,795,243.69 Weight of debt: .3146 Ans 3: bond price: 145.33 Market value: $20,491,988.15 Weight of debt: .3101

Too young, Inc., has a bond outstanding with a coupon rate of 7.1 percent and semiannual payments. The bond currently sells for $1,856 and matured in 22 years. The par value is $2,000. What is the company's pretax cost of debt? 6.3%-$1,947-21yrs-$2,000

N 44 PV -1,856 PMT 71 FV 2,000 I/y= 3.90%(2) YTM = 7.79% Ans 2: 6.53%

Galvatron metals has a bond outstanding with a coupon rate of 6.5 percent and semiannual payments. The bond currently sells for $951 and matured in 23 years. The par value is $1,000 and the company's tax rate is 35 percent. What is the company's after tax cost of debt? 6.8%-1,870-20yr-2,000-35%

N 46 FV 1000 PV -951 PMT 32.5 I/Y= 3.46(2) =6.93(1-.35) = 4.50 Ans 2: 4.83%

The stock in Bowie enterprises has a beta of .85. The expected return on the market is 11.5 percent and the risk-free rate is 2.85 percent. What is the required return on the company's stock?

Re = .0285 + .85(.115-.0285) Re = .1020 or 10.2%

Smathers Corp. stock has a beta of .89. The market risk premium is 7.20 percent and the risk-free rate is 2.93 percent annually. What is the company's cost of equity? 1.23-7%-2.86

Re= .0293 + .89(.0720) =.0934 or 9.34% Ans 2: 11.47%

Rossdale Co. stock currently sells for $69.57 per share and has a beta of .91. The market risk premium is 7.40 percent and the risk-free rate is 2.97 percent annually. The company just paid a dividend of $3.69 per share, which it has pledged to increase at an annual rate of 3.40 percent indefinitely. What is your best estimate of the company's cost of equity?

Re= .0297 + .91(.074) Re= .097 or 9.7% Re= [3.69(1.034)/69.57] + .034 Re= .0888 or 8.88% Re= (9.70 + 8.88)/2 Re= 9.29%

Judy's boutique just paid an annual dividend of $2.95 on its common stock. The firm increases its dividend by 3.65 percent annually. What is the company's cost of equity if the current stock price is $40.84 per share? $3.19-3.85%-$41.8

Re= [(2.95(1.0365)/40.84] + .0365 = .1114 or 11.14% Ans 2: 11.78%

The stock in Bowie enterprises has a beta of 1.13. The expected return on the market is 12.30 percent and the risk-free rate is 3.30 percent. What is the required return on the company's stock? 1.23-11.3%-2.86

Re=.033 + 1.13(.1230-.033) Re=.1347 or 13.47% Ans 2: 13.24%

Alpha industries is considering a project with an initial cost of $8.1 million. The project will produce cash inflows of $1.46 million per year for 9 years. The project has the same risk as the firm. The firm has a pretax cost of debt of 5.64 percent and a cost of equity of 11.29 percent. The debt-equity ratio is .61 and the tax rate is 39 percent. What is the net present value of the project?

WACC = (1/1.61)(.1129) + (.61/1.61)(.0564)(1-.39) WACC = 8.32% Cf0 -8,100,000 Cf1 1,460,000 Cf2. 1,460,000 Ect.... to cf9 I/y 8.32% NPV = $901,843

Caddie manufacturing has a target debt-equity ratio of .70. Its cost of equity is 11 percent, and it's pretax cost of debt is 7 percent. If the tax rate is 21 percent, what is the company's WACC? .65-12%-6%-23%

WACC = .11(1/1.70) + .07(.70/1.70)(1-.21) = .0875 or 8.75% Ans 2: 9.09%

The two dollar store has a cost of equity of 10.6 percent, the YTM on the company's bonds is 5.2 percent, and the tax rate is 39 percent. If the company's debt-equity ratio is .41, what is the weighted average cost of capital? 12.7-5.4-40%-.62

Waco=(1/1.41)(.106) + (.41/1.41)(.052)(1-.39) =8.44% Ans 2: 9.08%

Bermude cruises issues only common stock and common bonds. The firm has a debt-equity ratio of .73. The cost of equity is 11.5 percent and the pretax cost of debt is 6.6 percent. What is the capital structure weight of the firm's equity if the firm's tax rate is 39 percent? 1.14-13.5%-7.6-40%

Xe = 1/(1+.73) Xe = .5780 Ans 2: .4149