You have been assigned to calculate the Weighted Average-Cost-of-Capital (WACC) for your small firm The company has three sources of long-term capital. Its marginal tax rate is 21% First, there are 2,354,000 shares of common stock outstanding which are currently trading at $37.51 per share. You estimate that your firm has a beta of 0.90, and that the long-term return in equity markets will be 11.50%. The current return on short-term T-Bills is 2.25% Second, the firm has 190.000 shares of preferred stock outstanding. These shares pay annual (perpetual) dividends of $7.00 per share, and are currently selling for $94.62. Third, there is an issue of 62.500 coupon bonds outstanding. These bonds have a face value of $1,000, mature in seventeen years, and pay 5.74% annual coupons These instruments are currently trading for $1.054.23. Based on the data, what portion of the market value of the firm's assets are financed with debt? $1.29 % 38.27% - 37.03% O 61.73%

You have been assigned to calculate the Weighted Average-Cost-of-Capital (WACC) for your small firm The company has three sources of long-term capital. Its marginal tax rate is 21% First, there are 2,354,000 shares of common stock outstanding which are currently trading at $37.51 per share. You estimate that your firm has a beta of 0.90, and that the long-term return in equity markets will be 11.50%. The current return on short-term T-Bills is 2.25% Second, the firm has 190.000 shares of preferred stock outstanding. These shares pay annual (perpetual) dividends of $7.00 per share, and are currently selling for $94.62. Third, there is an issue of 62.500 coupon bonds outstanding. These bonds have a face value of $1,000, mature in seventeen years, and pay 5.74% annual coupons These instruments are currently trading for $1.054.23. Based on the data, what portion of the market value of the firm's assets are financed with debt? $1.29 % 38.27% - 37.03% O 61.73%

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 30% long-term debt, 10% preferred stock, and 60% common stock equity (retained earnings, new common�� stock, or both). The firm's tax rate is 23%. Debt : The firm can sell for $1030 a 14-year, $1,000-par-value bond paying annual interest at a 8.00% coupon rate. A flotation cost of 2% of the par value is required. Preferred stock: 9.00% (annual dividend) preferred stock having a par value of $100 can be sold for $92.An additional fee of $2 per share must be paid to the underwriters. Common stock: The firm's common stock is currently selling for $90 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.00 ten years ago to the $3.26 dividend payment, D0, that the company just recently made.…
You have been assigned to calculate the Weighted-Average-Cost-of-Capital for your firm, which has two sources of long-term capital. The company's marginal tax rate is 25%. First, there are 207,500 shares of common stock, which are currently selling for $41.93. You estimate that the firm's Beta is 0.95. The current return on short-term T- Bill is 2.25%, and you expect the long-term return on the stock market to be about 9.75%. Second, the firm has 43,000 shares of preferred stocks outstanding, which promise annual (perpetual) dividends of $3.90. These stocks are currently selling for $54.32 per share. Third, there is an issue of 4,500 coupon bonds with a face value of $1,000, which pays 5.10% (annual) coupons, and mature in fourteen years. These bonds are currently trading for $952.35. Third, calculate the yield-to-maturity on the company's bonds. O 5.10% 5.60% ○ 4.75% O 5.75%
What is a firm's weighted-average cost of capital if the stock has a beta of 2.45, Treasury bills yield 5%, and the market portfolio offers an expected return of 14%? In addition to equity, the firm finances 30% of its assets with debt that has a yield to maturity of 9%. The firm is in the 35% marginal tax bracket. In order to earn full credit, you must show your work and calculations
Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 30% long-term debt, 10% preferred stock, and 60% common stock equity (retained earnings, new common stock, or both). The firm's tax rate is 23%. Debt : The firm can sell for $1030 a 14-year, $1,000-par-value bond paying annual interest at a 8.00% coupon rate. A flotation cost of 2% of the par value is required. Preferred stock: 9.00% (annual dividend) preferred stock having a par value of $100 can be sold for $92.An additional fee of $2 per share must be paid to the underwriters. Common stock: The firm's common stock is currently selling for $90 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.00 ten years ago to the $3.26 dividend payment, D0, that the company just recently made.…
You want to estimate the Weighted Average Cost of Capital (WACC) for Levi Inc. The company’s tax rate is 21% and it has the equity beta of 1.24. Its debt value is $2,304 million and the equity market value is $70,080 million. The company’s interest expense is $83 million. Assume that the risk-free rate is 5% and the market return is 12%. Based on the information, compute the WACC for Levi
Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 35% long-term debt, 20% preferred stock, and 45% common stock equity (retained earnings, new common stock, or both). The firm's tax rate is 21%. Debt The firm can sell for $1030 a 13-year, $1,000-par-value bond paying annual interest at a 7.00% coupon rate. A flotation cost of 2% of the par value is required. Preferred stock 8.5% (annual dividend) preferred stock having a par value of $100 can be sold for $90. An additional fee of $4 per share must be paid to the underwriters. Common stock The firm's common stock is currently selling for $60 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.75 ten years ago to the $5.41 dividend payment, D0, that the company just recently made. If the…
Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 35% long-term debt, 20% preferred stock, and 45% common stock equity (retained earnings, new common stock, or both). The firm's tax rate is 21%. Debt The firm can sell for $1030 a 13-year, $1,000-par-value bond paying annual interest at a 7.00% coupon rate. A flotation cost of 2% of the par value is required. Preferred stock 8.5% (annual dividend) preferred stock having a par value of $100 can be sold for $90. An additional fee of $4 per share must be paid to the underwriters. Common stock The firm's common stock is currently selling for $60 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.75 ten years ago to the $5.41 dividend payment, D0, that the company just recently made. If the…
A company has a beta of 1.8, pre-tax cost of debt of 5% and an effective corporate tax rate of 20%. 40% of its capital structure is debt and the rest is equity. The current risk-free rate is 1.5% and the expected market return is 5.5%. What is this company's weighted average cost of capital? Answer in percent, rounded to one decimal place.
Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 40% long-term debt, 15% preferred stock, and 45% common stock equity (retained earnings, new common stock, or both). The firm's tax rate is 26%. Debt The firm can sell for $1005 a 13-year, $1,000-par-value bond paying annual interest at a 6.00% coupon rate. A flotation cost of 2.5% of the par value is required. Preferred stock 7.00% (annual dividend) preferred stock having a par value of $100 can be sold for $98. An additional fee of $5 per share must be paid to the underwriters. Common stock The firm's common stock is currently selling for $80 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.50 ten years ago to the $4.92 dividend payment, D0, that the company just recently made. If…
Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 40% long-term debt, 15% preferred stock, and 45% common stock equity (retained earnings, new common stock, or both). The firm's tax rate is 26%. Debt The firm can sell for $1005 a 13-year, $1,000-par-value bond paying annual interest at a 6.00% coupon rate. A flotation cost of 2.5% of the par value is required. Preferred stock 7.00% (annual dividend) preferred stock having a par value of $100 can be sold for $98. An additional fee of $5 per share must be paid to the underwriters. Common stock The firm's common stock is currently selling for $80 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.50 ten years ago to the $4.92 dividend payment, D0, that the company just recently made. If…
Mackenzie Company has a price of $35 and will issue a dividend of $2.00 next year. It has a beta of 1.5, the risk-free rate is 5.2%, and the market risk premium is estimated to be 4.8%. a. Estimate the equity cost of capital for Mackenzie. b. Under the CDGM, at what rate do you need to expect Mackenzie's dividends to grow to get the same equity cost of capital as in part (a)?
A company has determined that its optimal capital structure consists of 34 percent debt and the rest is equity. Given the following information, calculate the firm's weighted average cost of capital. Rd = 7.8%; Tax rate = 28 %: Po = $ 39.01; Growth = 5.1%; and D1 = $ 1.02. Show your answer to the nearest .1% Your Answer: Answer

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