Foundations Of Finance
10th Edition
ISBN: 9780134897264
Author: KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher: Pearson,
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Chapter 9, Problem 9SP
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The net income of Progressive Corporation is $92,000. The company has 25,000
outstanding shares and a 100 percent payout policy. The expected value of the firm one
year from now is $1,790,000. The appropriate discount rate for the company is 11
percent and the dividend tax rate is zero.
a. What is the current value of the firm assuming the current dividend has not yet been
paid? (Do not round intermediate calculations and round your answer to 2 decimal
places, e.g., 32.16.)
b. What is the ex-dividend price of the company's stock if the board follows its current
policy? (Do not round intermediate calculations and round your answer to 2
decimal places, e.g., 32.16.)
a. Current value of the firm
b. Share price
The common stock for Hightower Corporation currently sells for $62. If a new issue is sold, the flotation costs will be 6 percent. The company pays 50percent of its earnings in dividends (and expects to continue to do so), and a $4 dividend was recently paid. Earnings per share 5 years ago were $5.Earnings are expected to continue to grow at the same rate as during the past 5 years. The firm's marginal tax rate is 30 percent. Calculate the cost of (a)internal equity and (b) external equity.
S Corp. is expected to pay a $2.55 dividend at year end, the dividend is expected to grow at a constant rate of 4.50% a year, and the common stock currently sells for $35 a share. The before-tax cost of debt is 5.50%, and the tax rate is 40%. The target capital structure consists of 40% debt and 60% common equity. What is the company’s WACC? Do not round your intermediate calculations
Chapter 9 Solutions
Foundations Of Finance
Ch. 9 - Define the term cost of capital.Ch. 9 - Prob. 2RQCh. 9 - Why do firms calculate their weighted average cost...Ch. 9 - Prob. 4RQCh. 9 - Prob. 5RQCh. 9 - Prob. 6RQCh. 9 - Prob. 7RQCh. 9 - Prob. 1SPCh. 9 - Prob. 2SPCh. 9 - (Cost of equity) In the spring of 2018, the Brille...
Ch. 9 - Prob. 4SPCh. 9 - Prob. 5SPCh. 9 - Prob. 6SPCh. 9 - Prob. 7SPCh. 9 - (Cost of internal equity) Pathos Co.s common stock...Ch. 9 - (Cost of equity) The common stock for the Bestsold...Ch. 9 - Prob. 10SPCh. 9 - Prob. 11SPCh. 9 - Prob. 12SPCh. 9 - a. Rework Problem 9-12 as follows: Assume an 8...Ch. 9 - (Capital structure weights) Wingate Metal...Ch. 9 - (Weighted average cost of capital) The capital...Ch. 9 - Prob. 17SPCh. 9 - Prob. 18SPCh. 9 - Prob. 19SPCh. 9 - (Divisional costs of capital and investment...Ch. 9 - Prob. 21SPCh. 9 - Prob. 2.1MCCh. 9 - If you were to evaluate divisional costs of...
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