Dunlop Corp. has computed its cost of equity as 15% using the discounted cash flow method, 14% using the capital asset pricing model method, and 10% using the bond yield plus risk premium method. Dunlop’s cost of equity is: Question 2 options: 15% 13% 10% 14%
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Dunlop Corp. has computed its
Question 2 options:
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15% |
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13% |
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10% |
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14% |
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- Currently, Bloom Flowers Inc. has a capital structure consisting of20% debt and 80% equity. Bloom's debt currently has an 8% yield to maturity. The risk-free rate (rgr) is 5%, and the market risk premium (ry ~ rer) is 6%. Using the CAPM, Bloom estimates that its cost of equity is currently 12.5%. The company has a 40% tax rate.a. Whatis Bloom's current WACC?b. What is the current beta on Bloom's common stock?c. What would Bloom’s beta be if the company had no debt in its capital structure? (That is, what is Bloom’s unlevered beta, by?)Bloom’s financial staff is considering changing its capital structure to 40% debt and 60% equity. If the company went ahead with the proposed change, the yield to maturity on the company’s bonds would rise to 9.5%. The proposed change will have no effect on the company’s tax rate.d. What would be the company’s new cost of equily if it adopted the proposed change in capital structure?e. What would be the company’s new WACC if it adopted the proposed change…Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, D1, to be $2.40 and it expects dividends to grow at a constant rate gL = 5.8%. The firm's current common stock price, P0, is $21.00. The current risk-free rate, rRF, = 4.8%; the market risk premium, RPM, = 6.1%, and the firm's stock has a current beta, b, = 1.2. Assume that the firm's cost of debt, rd, is 10.57%. The firm uses a 4.1% risk premium when arriving at a ballpark estimate of its cost of equity using the bond-yield-plus-risk-premium approach. What is the firm's cost of equity using each of these three approaches? Do not round intermediate calculations. Round your answers to two decimal places. CAPM cost of equity: % Bond-Yield-Plus-Risk-Premium: % DCF cost of equity: % If you are equally confident of all three methods, then what is the best estimate of the firm’s cost of…ANB ltd has common equity of $35.5mn and $31.9mn of long-term debt and $10.3mn of preferredequity on its books. Required return on these funds are 12%, 8%, and 10%, respectively. Market valuesof the common equity and long-term debt are $46.6mn and $35mn, respectively. Market value ofpreferred equity is the same as its book value. Estimate WACC for the company given that its effectivetax rate is 30%.
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