the firm have a yield rate of 8.1%. Bonds with a similar debt rating has a default rate of 3.1% and a loss rate of 55%. The total market value of the firm's bonds is 280 million. The risk free rate is 1.9% and the market risk premium is 7.5%. The volatility of the market portfolio is 23%. Suppose that the CAPM assumptions hold. Calculate the covariance between the return of the firm's assets and the return of the market portfolio. 0.0472 0.0434 0.0548 0.0585 O 0.0510

the firm have a yield rate of 8.1%. Bonds with a similar debt rating has a default rate of 3.1% and a loss rate of 55%. The total market value of the firm's bonds is 280 million. The risk free rate is 1.9% and the market risk premium is 7.5%. The volatility of the market portfolio is 23%. Suppose that the CAPM assumptions hold. Calculate the covariance between the return of the firm's assets and the return of the market portfolio. 0.0472 0.0434 0.0548 0.0585 O 0.0510

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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Vestal Corp. has a beta of 1.3, the market risk premium is 7% and the risk-free rate of interest is 4%. Vestal's preferred stock pays a dividend of $4 each year and trades at a price of $40 per share. Vestal's debt trades with a yield to maturity of 8.5%. The market value of equity, preferred stock and debt for Vestal Corp. are $80 billion, $40 billion and $120 billion, respectively. What is Vestal's weighted average cost of capital if its tax rate is 30%?
MV Pfd Corporation has debt with a coupon rate of 5% and a yield to maturity of 7%, a cost of equity of 15% and a cost of preferred stock of 10%. Its debt has a market value of $130 million and a book value of $150 million. The common equity has a book value of $80 million and the preferred stock has a book value of $60 million. The preferred stock is currently trading at a 25% premium over its book value per share, while the common stock trades at $20 per share, with 8 million shares outstanding. The tax rate is 30%. What is this firm’s value of preferred stock, P(for use in the weights)? A. $150 million B. $75 million C. $80 million D. $160 million E. $180 million F. $130 million G. $15 million H. $60 million I. $140 million
he total book value of WTC’s equity is $7 million, and book value per share is $14. The stock has a market-to-book ratio of 1.5, and the cost of equity is 12%. The firm’s bonds have a face value of $4 million and sell at a price of 110% of face value. The yield to maturity on the bonds is 9%, and the firm’s tax rate is 21%. What is the company’s WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) WACC= ______%
The total value (debt plus equity) of Wilson Dover Inc. is $500 million and the face value of its 1-year coupon debt is $200 million. The volatility (σ) of Wilson Dover's total value is 0.60, and the risk-free rate is 5%. Assume that N(d1) = 0.9720 and N(d2) = 0.9050.Refer to the data for Wilson Dover Inc. What is the yield on Wilson Dover's debt? a. 7.05% b. 6.70% c. 6.04% d. 7.42% e. 6.36%
If Wild Widgets, Inc., were an all-equity company, it would have a beta of .90. The company has a target debt-equity ratio of .60. The expected return on the market portfolio is 11 percent and Treasury bills currently yield 3.3 percent. The company has one bond issue outstanding that matures in 26 years, a par value of $2,000, and a coupon rate of 6 percent. The bond currently sells for $2,130. The corporate tax rate is 24 percent. a. What is the company’s cost of debt? What is the company’s cost of equity? What is the company’s weighted average cost of capital?
A common stock has a market value $13 million. The market value of risk free debt is $8 million. IF the beta of the stock is 1.3 and market return is 15%, calculate the firm's cost of capital. (Treasury bill rate is 5% and assume no taxes)
Tell Corp. has a total book value of equity of $10 million and a book value per share of $20. The stock sells for a price of $30 per share, and the cost of equity is 15%. The firm's bonds have a par value of $5 million and sel at a price of 110% of par. The yield to maturity on the bonds is 9%, and the firms tax rate is 30%. What is the firms Weighted Average Cost of Capital? A. 11.91% B. 12.10% C. 12.67% D. 12.82 E. 13.30
A firm has 20 $1,000 face value bonds outstanding. The bonds pay annual coupons and have a coupon rate of 5%. The bonds are currently trading at a price of 1,015 and have 5 years until maturity. The firm also has 2,600 shares of common stock outstanding that trade for $17 per share. The market risk premium is 9%, the risk-free rate is 2.25% and the firm’s beta is 1.6. The corporate tax rate is 21%. What is the firm’s weighted average cost of capital?
The market value of Charcoal Corporation's common stock is $20 million, and the market value of its risk-free debt is $5 million. The beta of the company's common stock is 1.25, and the market risk premium is 8 percent. If the Treasury bill rate is 5 percent, what is the company's cost of capital? (Assume no taxes.) 15.0 percent 14.6 percent 13.0 percent 7.0 percent
ABC Corp has 20,000 shares of bonds outstanding with a coupon rate of 6%, face value of $1,000, and 30 years to maturity. The bonds are selling for 110 percent of par and make semiannual payments. The company also has 600,000 shares outstanding of common stock selling for $67 per share. The beta of the stock is 1.29 and the tax rate is 21%. a. If the Treasury bill rate is 3% and the market risk premium is estimated at 7%., what is ABC’s cost of equity capital? b. What is the WACC? c. ABC Corp plans to expand the current operations. If the project will pay a cash flow of 10,000 next year and then cash flows growing at a rate of 4% over the next 3 years (for a total of 4 of cash flows), what is the most ABC is willing to spend on the initial investment for this project? Please show exceln formulas
If Smolinski, Incorporated, were an all-equity company, it would have a beta of.95. The company has a target debt - equity ratio of .50. The expected return on the market portfolio is 12 percent and Treasury bills currently yield 3.1 percent. The company has one bond issue outstanding that matures in 25 years, a par value of $1,000, and a coupon rate of 6 percent. The bond currently sells for $ 1,050. The corporate tax rate is 23 percent. a. What is the company's cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g ., 32.16.) b. What is the company's cost of equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the company' s weighted average cost of capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e. g., 32.16.)
Your company currently has a bond issue outstanding with 13 years to maturity, a face value of $1,000 that trade for $1,042. The total face value amount outstanding is $5,720,000 and the expected return on the bonds is 3.79%. Your company has 507,000 shares of common stock outstanding. The shares have a beta of 1.26, and currently sells for $12/share. Treasury bills yield 1.35% and the expected rate of return on the S&P 1,500 index is 6.25%. The corporate tax rate is 26%. What is the WACC?

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