Finance Final (CH 10-12)

The yield to maturity on a company's debt is 9.1% per year and its cost of equity financing is 14.9% per year. The company's tax rate is 37%. If the company's capital structure is 65% debt and 35% equity, what is the company's annual weighted average cost of capital?

8.94% WACC = (0.65)(9.1)(1 - 0.37) + (0.35)(14.9) = 8.94

A stock's beta is 0.89, the tax rate is 34%, and the expected market return is 10.7% per year. The company's common stock has a market value of $85.26 per share and its last dividend was $6.43 per share. The yield to maturity for the company's long-term debt is 8.4% per year. If the risk-free interest rate is 4.2% per year, what is the company's annual cost of retained earnings financing?

10% Cost = Risk-free rate + beta(market risk premium) = 4.2 + 0.89(10.7 - 4.2) = 10.0

A stock's beta is 1.14 and the market risk premium is 5.7% per year. The company's common stock has a market value of $82.44 per share and its last dividend was $3.08 per share. The company's dividends are expected to grow forever at a constant rate of 6.3% per year and the tax rate is 34%. If the flotation costs for common stock are 7%, what is the company's annual cost of common stock financing?

10.6% Cost = D1/(P(1 - f)) + g = 3.08(1.063)/(82.44(1 - 0.07)) + 0.063 = 0.106

The market value of a company's debt is $476.2 million and the market value of the equity is $618.3 million. The book value of the debt is $500.0 million and the book value of the equity is $200.0 million. The yield to maturity on the debt is 9.4% per year and the company's cost of equity financing is 15.2% per year. The company's tax rate is 37%. What is the company's annual weighted average cost of capital?

11.16% The total market value of the company's securities is $1,094.5 million. WACC = [476.2M(9.4)(1 - 0.37) + 618.3M(15.2)]/1,094.5M = 11.16

A company's next dividend is expected to be $1.15 per share and the dividends are expected to grow forever at a constant rate of 7.2% per year. The stock's beta is 0.96, the tax rate is 40%, and the market risk premium is 5.1% per year. The yield to maturity for the company's long-term debt is 9.6% per year. If the expected market return is 11.4% per year, what is the company's annual cost of retained earnings financing?

11.2% Cost = Risk-free rate + beta(market risk premium) = (11.4 - 5.1) + 0.96(5.1) = 11.2

A stock's beta is 0.81, the tax rate is 36%, and the market risk premium is 5.2% per year. The company's common stock has a market value of $35.82 per share and its next dividend is expected to be $2.91 per share. The yield to maturity for the company's long-term debt is 7.1% per year. If the riskiness of the company's equity requires that it provide a risk premium of 4.5% per year over the yield on its long-term debt, what is the company's annual cost of retained earnings financing?

11.6% Cost = Bond yield + risk premium = 7.1 + 4.5 = 11.6

The yield to maturity for a company's long-term debt is 8.1% per year. The company's common stock has a market value of $47.89 per share and its last dividend was $3.15 per share. The stock's beta is 0.98, the tax rate is 31%, and the market risk premium is 5.1% per year. If the riskiness of the company's equity requires that it provide a risk premium of 3.5% per year over the yield on its long-term debt, what is the company's annual cost of retained earnings financing?

11.6% Cost = Bond yield + risk premium = 8.1 + 3.5 = 11.6

A company's common stock has a market value of $43.18 per share and its next dividend is expected to be $2.86 per share. The stock's beta is 1.2, the tax rate is 35%, and the market risk premium is 6.4% per year. The yield to maturity for the company's long-term debt is 9.5% per year. If the risk-free interest rate is 4.1% per year, what is the company's annual cost of internal equity financing?

11.8% Cost = Risk-free rate + beta(market risk premium) = 4.1 + 1.2(6.4) = 11.8

A company's common stock has a market value of $91.32 per share and its next dividend is expected to be $4.95 per share. The market risk premium is 5.3% per year and the risk-free interest rate is 3.1% per year. The riskiness of the company's equity requires that it provide a risk premium of 3.7% per year over the yield on its long-term debt. If the company's dividends are expected to grow forever at a constant rate of 6.5% per year and the tax rate is 36%, what is its annual cost of internal equity financing?

11.9% Cost = D1/P + g = 4.95/91.32 + 0.065 = 0.119

A company's common stock has a market value of $33.48 per share and its next dividend is expected to be $2.40 per share. The stock's beta is 1.3 and the market risk premium is 5.4% per year. The company's dividends are expected to grow forever at a constant rate of 4.6% per year and the tax rate is 30%. If the flotation costs for common stock are 8%, what is the company's annual cost of external equity financing?

12.4% Cost = D1/(P(1 - f)) + g = 2.40/(33.48(1 - 0.08)) + 0.046 = 0.124

A company's common stock has a market value of $23.48 per share and its next dividend is expected to be $1.80 per share. The stock's beta is 1.2 and the market risk premium is 6.4% per year. The yield to maturity for the company's long-term debt is 9.8% per year. If the company's dividends are expected to grow forever at a constant rate of 4.8% per year and the tax rate is 40%, what is its annual cost of internal equity financing?

12.5%

A stock's beta is 1.34 and the expected market return is 12.4% per year. The company's common stock has a market value of $37.27 per share and its last dividend was $2.13 per share. If the company's dividends are expected to grow forever at a constant rate of 7.4% per year and the tax rate is 28%, what is its annual cost of internal equity financing?

13.5% Cost = D1/P + g = 2.13(1.074)/37.27 + 0.074 = 0.135

A company's common stock has a market value of $9.88 per share and its next dividend is expected to be $0.75 per share. The risk-free interest rate is 4.6% per year and the market risk premium is 5.3% per year. The riskiness of the company's equity requires that it provide a risk premium of 3.0% per year over the yield on its long-term debt. If the company's dividends are expected to grow forever at a constant rate of 6.1% per year and the tax rate is 36%, what is its annual cost of internal equity financing?

13.7% Cost = D1/P + g = 0.75/9.88 + 0.061 = 0.137

A company's common stock has a market value of $67.12 per share and its last dividend was $4.95 per share. The yield to maturity for the company's long-term debt is 10.3% per year. The stock's beta is 1.4 and the expected market return is 11.4% per year. If the company's dividends are expected to grow forever at a constant rate of 6.4% per year and the tax rate is 33%, what is its annual cost of retained earnings financing?

14.3% Cost = D1/P + g = 4.95(1.064)/67.12 + 0.064 = 0.143

A stock's beta is 1.22 and the expected market return is 12.6% per year. The company's common stock has a market value of $67.51 per share and its next dividend is expected to be $5.74 per share. The company's dividends are expected to grow forever at a constant rate of 6.3% per year and the tax rate is 40%. If the flotation costs for common stock are 7%, what is the company's annual cost of external equity financing?

15.4% Cost = D1/(P(1 - f)) + g = 5.74/(67.51(1 - 0.07)) + 0.063 = 0.154

A company's common stock has a market value of $94.37 per share and its next dividend is expected to be $7.27 per share. The stock's beta is 1.35 and the expected market return is 12.1% per year. The company's dividends are expected to grow forever at a constant rate of 8.1% per year and the tax rate is 39%. If the flotation costs for common stock are 9%, what is the company's annual cost of common stock financing?

16.6% Cost = D1/(P(1 - f)) + g = 7.27/(94.37(1 - 0.09)) + 0.081 = 0.166

A company's perpetual preferred stock has a market value of $104.3 million and pays dividends of $5.5 million per year. The company's tax rate is 33%. If the preferred stock's par value is $100 million, what is the company's annual cost of preferred stock financing?

5.27% Cost = D/P = 5,500,000/104,300,000 = 0.0527

A company's perpetual preferred stock has a par value of $25 per share and it pays a dividend rate of 6.25% per year. The preferred stock's market value is $27.95 per share and the company's tax rate is 33%. If the flotation costs for preferred stock are 3%, what is the company's annual cost of new preferred stock financing?

5.76% Cost = D/(P(1 - f)) = 25(0.0625)/(27.95(1 - 0.03)) = 0.0576

A company's debt has a market value of $26.3 million, 14 years to maturity, and pays a coupon of 4.75% per year, semiannually. If the debt's par value is $30 million, what is the debt's annual yield to maturity?

6.08% FV = 30,000,000, N = 14x2 = 28, PMT = 30,000,000(0.0475/2) = 712,500, PV = -26,300,000, CPT I = 3.04 Annualize: 3.04(2) = 6.08

A company's perpetual preferred stock has a market value of $15.7 million and pays a dividend rate of 7.0% per year. The company's tax rate is 30%. If the preferred stock's par value is $14.0 million, what is the company's annual cost of preferred stock financing?

6.24% Cost = D/P = 14,000,000(0.070)/15,700,000 = 0.0624

A company's perpetual preferred stock has a par value of $50 per share and it pays a dividend rate of 6.75% per year. The preferred stock's market value is $55.23 per share and the company's tax rate is 33%. If the flotation costs for preferred stock are 5%, what is the company's annual cost of new preferred stock financing?

6.43% Cost = D/(P(1 - f)) = 50(0.0675)/(55.23(1 - 0.05)) = 0.0643

A company's perpetual preferred stock has a par value of $70 per share and it pays a dividend rate of 6.25% per year. The preferred stock's market value is $71.87 per share and the company's tax rate is 40%. If the flotation costs for preferred stock are 6%, what is the company's annual cost of new preferred stock financing?

6.48% Cost = D/(P(1 - f)) = 70(0.0625)/(71.87(1 - 0.06)) = 0.0648

A company's capital structure is 35% debt, 30% preferred stock, and 35% equity. The yield to maturity on the company's debt is 6.2% per year, its cost of preferred stock financing is 6.8% per year, and its cost of equity financing is 10.3% per year. If the company's tax rate is 36%, what is the company's annual weighted average cost of capital?

7.03% WACC = (0.35)(6.2)(1 - 0.36) + (.30)(6.8) + (0.35)(10.3) = 7.03

A company's last dividend was $1.35 per share and the dividends are expected to grow forever at a constant rate of 6.3% per year. The riskiness of the company's equity requires that it provide a risk premium of 4.0% per year over the yield on its long-term debt. The stock's beta is 0.85, the tax rate is 37%, and the market risk premium is 5.7% per year. If the expected market return is 8.8% per year, what is the company's annual cost of retained earnings financing?

7.9% Cost = Risk-free rate + beta(market risk premium) = (8.8 - 5.7) + 0.85(5.7) = 7.9

The yield to maturity on a company's debt is 6.7% per year, the cost of preferred stock financing is 7.1% per year, and the company's cost of equity financing is 11.7% per year. The company's tax rate is 35%. The book value of the debt is $10.0 million, the book value of the preferred stock is $5.0 million, and the book value of the equity is $15.0 million. The market value of the debt is $11.4 million, the market value of the preferred stock is $5.8 million, and the market value of the equity is $14.6 million. What is the company's annual weighted average cost of capital?

8.23% The total market value of the company's securities is $31.8 million. WACC = [11.4M(6.7)(1 - 0.35) + 5.8M(7.1) + 14.6M(11.7)]/31.8M = 8.23

The market value of a company's debt is $73.2 million and the market value of the equity is $118.3 million. The book value of the debt is $70.0 million and the book value of the equity is $50.0 million. The yield to maturity on the debt is 6.4% per year and the company's cost of equity financing is 11.4% per year. The company's tax rate is 34%. What is the company's annual weighted average cost of capital?

8.66% The total market value of the company's securities is $191.5 million. WACC = [73.2M(6.4)(1 - 0.34) + 118.3M(11.4)]/191.5M = 8.66

The market value of a company's debt is $73.2 million, the market value of the preferred stock is $43.7 million, and the market value of the equity is $114.9 million. The yield to maturity on the debt is 6.8% per year, the cost of preferred stock financing is 7.3% per year, and the company's cost of equity financing is 12.3% per year. The company's tax rate is 38%. What is the company's annual weighted average cost of capital?

8.8% WACC = [73.2M(6.8)(1 - 0.38) + 43.7M(7.3) + 114.9M(12.3)]/231.8M = 8.80

The market value of a company's debt is $34.7 million, the market value of the preferred stock is $21.4 million, and the market value of the equity is $55.2 million. The book value of the debt is $35.0 million, the book value of the preferred stock is $20.0 million, and the book value of the equity is $35.0 million. The yield to maturity on the debt is 5.8% per year, the cost of preferred stock financing is 7.4% per year, and the company's cost of equity financing is 12.4% per year. The company's tax rate is 30%. What is the company's annual weighted average cost of capital?

8.84% The total market value of the company's securities is $111.3 million. WACC = [34.7M(5.8)(1 - 0.3) + 21.4M(7.4) + 55.2M(12.4)]/111.3M = 8.84

A company's common stock has a market value of $63.18 per share and its next dividend is expected to be $3.26 per share. The stock's beta is 1.2, the tax rate is 35%, and the market risk premium is 6.1% per year. The yield to maturity for the company's long-term debt is 6.4% per year. If the riskiness of the company's equity requires that it provide a risk premium of 3.2% per year over the yield on its long-term debt, what is the company's annual cost of internal equity financing?

9.6% A company's common stock has a market value of $63.18 per share and its next dividend is expected to be $3.26 per share. The stock's beta is 1.2, the tax rate is 35%, and the market risk premium is 6.1% per year. The yield to maturity for the company's long-term debt is 6.4% per year. If the riskiness of the company's equity requires that it provide a risk premium of 3.2% per year over the yield on its long-term debt, what is the company's annual cost of internal equity financing?

A company's perpetual preferred stock has a market value of $433.1 million and pays a dividend rate of 9.25% per year. The company's tax rate is 37%. If the preferred stock's par value is $450 million, what is the company's annual cost of preferred stock financing?

9.61% Cost = D/P = 450,000,000(0.0925)/433,100,000 = 0.0961

The yield to maturity on a company's debt is 7.3% per year, the cost of preferred stock financing is 7.8% per year, and the company's cost of equity financing is 14.7% per year. The company's tax rate is 34%. The market value of the debt is $142.8 million, the market value of the preferred stock is $84.2 million, and the market value of the equity is $164.3 million. What is the company's annual weighted average cost of capital?

9.61% The total market value of the company's securities is $391.3 million. WACC = [142.8M(7.3)(1 - 0.34) + 84.2M(7.8) + 164.3M(14.7)]/391.3M = 9.61

The yield to maturity on a company's debt is 8.3% per year, the cost of preferred stock financing is 8.8% per year, and the company's cost of equity financing is 14.2% per year. The company's tax rate is 40%. The market value of the debt is $245.1 million, the market value of the preferred stock is $165.7 million, and the market value of the equity is $324.7 million. The book value of the debt is $240.0 million, the book value of the preferred stock is $175.0 million, and the book value of the equity is $75.0 million. What is the company's annual weighted average cost of capital?

9.91% The total market value of the company's securities is $735.5 million. WACC = [245.1M(8.3)(1 - 0.4) + 165.7M(8.8) + 324.7M(14.2)]/735.5M = 9.91