Finance 450 (Hwk #14)
Stock in Jansen Industries has a beta of 1.6. The market risk premium is 6 percent, and T-bills are currently yielding 5.5 percent. The company's most recent dividend was $1.90 per share, and dividends are expected to grow at an annual rate of 7 percent indefinitely. If the stock sells for $38 per share, what is your best estimate of the company's cost of equity?
Cost of equity 13.73%
Savers has an issue of preferred stock with a $5.05 stated dividend that just sold for $87 per share. What is the bank's cost of preferred stock?
Cost of preferred stock 5.80%
Dani Corporation has 6 million shares of common stock outstanding. The current share price is $84, and the book value per share is $5. The company also has two bond issues outstanding. The first bond issue has a face value of $145 million, a coupon rate of 5 percent, and sells for 95 percent of par. The second issue has a face value of $130 million, a coupon rate of 4 percent, and sells for 107 percent of par. The first issue matures in 24 years, the second in 9 years. Suppose the most recent dividend was $5.00 and the dividend growth rate is 4.9 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. The tax rate is 25 percent. What is the company's WACC?
WACC 8.31%
Sunrise, Incorporated, is trying to determine its cost of debt. The firm has a debt issue outstanding with 21 years to maturity that is quoted at 95 percent of face value. The issue makes semiannual payments and has an embedded cost of 5 percent annually. a.What is the company's pretax cost of debt? b.If the tax rate is 25 percent, what is the aftertax cost of debt?
a. Pretax cost of debt 5.40% b. Aftertax cost of debt 4.05%
Ninecent Corporation has a target capital structure of 60 percent common stock, 5 percent preferred stock, and 35 percent debt. Its cost of equity is 12 percent, the cost of preferred stock is 8 percent, and the pretax cost of debt is 9 percent. The relevant tax rate is 24 percent. a.What is the company's WACC? b.What is the aftertax cost of debt?
a. WACC 10.00% b. Cost of debt 6.84%