Dani Corporation has 9 million shares of common stock outstanding. The current share price is $75, and the book value per share is $6. The company also has two bond issues outstanding. The first bond issue has a face value of $100 million, has a coupon rate of 4 percent, and sells for 96 percent of par. The second issue has a face value of $85 million, has a coupon rate of 3 percent, and sells for 108 percent of par. The first issue matures in 24 years, the second in 7 years. Suppose the most recent dividend was $4.55 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. Both bonds make semiannual payments. The tax rate is 21 percent. What is the company's WACC?
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- A5 10 c 10. The management of Oodles N Noodles Inc. is contemplating a 20% stock dividend. The company currently has cash of $300,000, fixed assets of $3.5 million, and debt of $1 million. Its net income for the most recent fiscal year was $500,000. The company’s shares are currently selling for $15 per share, and it has one million shares outstanding. Assume that there are no costs associated with issuing a stock dividend. c. If all that the company’s shareholders care about are their wealth and the P/E ratio, should the company go ahead with the stock dividend?Ch. 13. For questions 7, 8, and 9, use the following information: 7.) Consider a firm whose debt has a market value of $35 million and whose stock has a market value of $55 million. The firm pays a 7 percent rate of interest on its new debt and has a beta of 1.23. The corporate tax rate is 21%. Assume that the security market line holds, that the risk premium on the market is 10.5 percent, and that the current Treasury bill is rate is 1 percent. What is the aftertax cost of debt? Format as a percentage and round to two places past the decimal point as "X.XX" 5.53 8.) Consider a firm whose debt has a market value of $35 million and whose stock has a market value of $55 million. The firm pays a 7 percent rate of interest on its new debt and has a beta of 1.23. The corporate tax rate is 21%. Assume that the security market line holds, that the risk premium on the market is 10.5 percent, and that the current Treasury bill is rate is 1 percent. Using the pretax cost of debt from Question…16.H-Model (LO2, CFA6) The dividend for Should I, Inc., is currently $1.25 per share. It is expected to grow at 20 percent next year and then decline linearly to a 5 percent perpetual rate beginning in four years. If you require a 15 percent return on the stock, what is the most you would pay per share?
- Ch. 13. For questions 7, 8, and 9, use the following information: Consider a firm whose debt has a market value of $35 million and whose stock has a market value of $55 million. The firm pays a 7 percent rate of interest on its new debt and has a beta of 1.23. The corporate tax rate is 21%. Assume that the security market line holds, that the risk premium on the market is 10.5 percent, and that the current Treasury bill is rate is 1 percent. What is the aftertax cost of debt? Format as a percentage and round to two places past the decimal point as "X.XX"A5 10 b 10. The management of Oodles N Noodles Inc. is contemplating a 20% stock dividend. The company currently has cash of $300,000, fixed assets of $3.5 million, and debt of $1 million. Its net income for the most recent fiscal year was $500,000. The company’s shares are currently selling for $15 per share, and it has one million shares outstanding. Assume that there are no costs associated with issuing a stock dividend. b. The company’s management would like to hold its earnings per share within the range of 0.4–0.6. Given this constraint, should the company go ahead with the stock dividend?A2 11 May I please have the answer in formula form and not excel. thx:) 11. GeoTech Company will be holding an IPO of two million shares tomorrow. Market expectations are high for this IPO. The company is expected to pay $1.00 per share starting one year from now. The dividends are then expected to grow at a supernormal rate of 25% for three years, before dropping down to 15% for three more years, and then to 7% afterwards. The 7% growth is then expected to continue for the foreseeable future. What is the gross dollar amount that will be raised from this IPO if the required return for similar issues is 16%? Hint: The first dividend is $1.00.
- Problem 12-1 Calculating Cost of Equity [LO 1] The Tribiani Company just issued a dividend of $2.40 per share on its common stock. The company is expected to maintain a constant 8 percent growth rate in its dividends indefinitely. If the stock sells for $44.20 a share, what is the company’s cost of equity? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.for question 9 Ch. 13. For questions 7, 8, and 9, use the following information: 7.) Consider a firm whose debt has a market value of $35 million and whose stock has a market value of $55 million. The firm pays a 7 percent rate of interest on its new debt and has a beta of 1.23. The corporate tax rate is 21%. Assume that the security market line holds, that the risk premium on the market is 10.5 percent, and that the current Treasury bill is rate is 1 percent. What is the aftertax cost of debt? Format as a percentage and round to two places past the decimal point as "X.XX" 5.53 8.) Consider a firm whose debt has a market value of $35 million and whose stock has a market value of $55 million. The firm pays a 7 percent rate of interest on its new debt and has a beta of 1.23. The corporate tax rate is 21%. Assume that the security market line holds, that the risk premium on the market is 10.5 percent, and that the current Treasury bill is rate is 1 percent. Using the pretax cost of…Problem 12-11 Finding the WACC You are given the following information for Tara Ita Power Co. Assume the company’s tax rate is 22 percent. Debt: 10,000 7.1 percent coupon bonds outstanding, $1,000 par value, 25 years to maturity, selling for 107 percent of par; the bonds make semiannual payments. Common stock: 430,000 shares outstanding, selling for $61 per share; the beta is 1.04. Market: 10 percent market risk premium and 5.1 percent risk-free rate. What is the company's WACC?
- Mf3. Question 3. a) Which security has more total risk? b) Which security has more systematic risk? c) Which security should have the higher expected return? Why? QUESTION 4. The company XYZ has 2.5 million share of common stock outstanding and 60,000 bonds (par value of the bond is $1,000) with semi-annual coupon payments of $40 per bond. The bonds have 8 years to maturity and sell for $900, The common stock has a beta of 1.34 and sells for $42 a share. The US. Treasury bill is yielding 2.8 percent and the return on the market is 11.2 percent The corporate tax rate is 21 percent. What is the Company's weighted average cost of capital?Problem 11-16 Scenario Analysis (LO3) The common stock of Escapist Films sells for $25 a share and offers the following payoffs next year: Dividend Stock Price Boom $ 0 $ 18 Normal economy 1 26 Recession 3 34 The common stock of Leaning Tower of Pita Inc. is selling for $80 and offers these payoffs next year: Dividend Stock Price Boom $ 8 $ 240 Normal economy 4 90 Recession 0 0 Required: b-2. Calculate the expected rate of return and standard deviation of a portfolio half invested in Escapist and half in Leaning Tower of Pita. All three economic scenarios are equally likely to occur.20. Computing WACC. Find the WACC of William Tell Computers. The total book value of the firm’s equity is $15 million; book value per share is $30. The stock sells for a price of $40 per share, and the cost of equity is 15 percent. The firm’s bonds have a par value of $8 million and sell at a price of 110 percent of par. The yield to maturity on the bonds is 9 percent, and the firm’s tax rate is 40 percent.