The yield on a firms bond is 8.75% and your economist believes that the cost of common can be estimated using a risk premium of 3.85% over firms own cost of debt. What is the firms cost of common from reinvested earnings?

If the YTM is less than the coupon rate, wouldn't the bond price be higher?

Assume that the risk-free rate increases, but the market risk premium remains constant. What impact would this have on the cost of debt? What impact would it have on the cost of equity? Start a New Thread

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…

Steady​ Company's stock has a beta of 0.15. If the​ risk-free rate is 5.9% and the market risk premium is 6.8%​, what is an estimate of Steady​ Company's cost of​ equity?   ​Steady's cost of equity capital is _________%.

Suppose Simmons' common stock has a beta of 1.37, the risk-free rate is 3.4% and the market risk premium is 8.2%. The yield to maturity on the firm's bonds is 7.6%  and the debt-equity ratio is .45. What is the WACC if the tax rate is 23% and all interest is tax deductible?

Use the following information to answer this question. In your answers, ignore the negative sign, if any.    Yield on Bond A Yield on Bond B Yield on Bond C 5.50% 6.50% 3.50%   a) What is the yield spread between bonds A and B (in basis points)?  b) What is the relative yield spread between bonds B and C? Bond C is your basis.  c) What is the yield ratio between A and C? Bond C is your basis.

Answer the following a) When will the different DCF methods use the same discount rate? b) The cost of debt (ka) will change as the capital structure of a firm changes. Why or why not? c) Why does the cost of equity (k.) increase as the amount of debt in the capital structure of a firm increases? Why? d) Freebie Inc.'s common stock has a beta of 1.3. If the risk-free rate is 4.5% and the expected return on the market is 12%, what is its cost of equity capital? e) Why do branded food companies command the highest EBIT multiple (about 8) and transportation companies the lowest (about 3)? f) Should a firm use its cost of capital as a hurdle/discount rate to value all internal divisions? Why or why not? g) An option can have more than one source of value. Consider a mining company. The company can mine for ores today or wait another year (or more) to mine. What real options can you identify here? h) Do you consider dividend payments by the firm in calculating cash flows? Why or why not? i)…

XYZ has a beta coefficient of 1.76. Estimate its cost of equity if the risk-free rate is 8% and return on the broad market index is 16%. Calculate the cost of equity.

If you believe that the 10-1 spread will eventually get close to 0, but do not know whether the overall level of the yield curve will increase or decrease, which bond (s) do you short? Which bond (s) do you buy?