Loose Leaf for Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
11th Edition
ISBN: 9781259709685
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe
Publisher: McGraw-Hill Education
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Chapter 13, Problem 17QP
Summary Introduction
To determine: The WACC of the company.
Introduction: The WACC (Weighted Average Cost of Capital) is the total
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WhaDebt: 65,000 bonds outstanding ($1,000 face or par value) with an 7% coupon, 15 years to maturity, selling for 106 percent of par; the bonds make semiannual payments. Common Stock: 700,000 shares outstanding, selling for $65 per share; the beta is 1.2. Preferred Stock: 80,000 shares outstanding ($100 par value), it pays a 10% dividend on par, and it is selling for $125 per share. Market: The expected return on the market portfolio is 10% , the risk-free rate is 2% and the tax rate is 26%.
What is the required rate of return on preferred stock?
Consider the following information for Watson Power Company:
Debt:
2,500 6 percent coupon bonds outstanding, $1,000 par value, 17 years to maturity, selling for 103 percent of par; the bonds make semiannual payments.
Common stock:
50,000 shares outstanding, selling for $64 per share; the beta is 1.1.
Preferred stock:
7,500 shares of 5.5 percent preferred stock outstanding, currently selling for $106 per share.
Market:
8 percent market risk premium and 5 percent risk-free rate.
Assume the company's tax rate is 34 percent.
Find the WACC.
Multiple Choice
8.83%
8.93%
9.23%
9.59%
8.73%
Consider the following information for Watson Power Co.:
Debt:
4,500 7 percent coupon bonds outstanding, $1,000 par value, 18 years to maturity, selling for 103 percent of par; the bonds make semiannual payments.
Common stock:
108,000 shares outstanding, selling for $61 per share; the beta is 1.08.
Preferred stock:
14,000 shares of 6.5 percent preferred stock outstanding, currently selling for $104 per share.
Market:
9 percent market risk premium and 6 percent risk-free rate.
Assume the company's tax rate is 34 percent.
Find the WACC.
Chapter 13 Solutions
Loose Leaf for Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 13 - Project Risk If you can borrow all the money you...Ch. 13 - WACC and Taxes Why do we use an aftertax figure...Ch. 13 - SML Cost or Equity Estimation If you use the stock...Ch. 13 - SML Cost or Equity Estimation What are the...Ch. 13 - Prob. 5CQCh. 13 - Cost of Capital Suppose Tom OBedlam, president of...Ch. 13 - Company Risk versus Project Risk Both Dow Chemical...Ch. 13 - Prob. 8CQCh. 13 - Leverage Consider a levered firms projects that...Ch. 13 - Beta What factors determine the beta of a stock?...
Ch. 13 - Calculating Cost of Equity The Dybvig Corporations...Ch. 13 - Prob. 2QPCh. 13 - Calculating Cost of Debt Shanken Corp. issued a...Ch. 13 - Calculating Cost of Debt For the firm in the...Ch. 13 - Calculating WACC Mullineaux Corporation has a...Ch. 13 - Taxes and WACC Miller Manufacturing has a target...Ch. 13 - Finding the Capital Structure Farnas Llamas has a...Ch. 13 - Book Value versus Market Value Filer Manufacturing...Ch. 13 - Calculating the WACC In the previous problem,...Ch. 13 - Prob. 10QPCh. 13 - Finding the WACC Given the following information...Ch. 13 - Finding the WACC Titan Mining Corporation has 8.7...Ch. 13 - SML and WACC An all-equity firm is considering the...Ch. 13 - Calculating Flotation Costs Suppose your company...Ch. 13 - Calculating Flotation Costs Southern Alliance...Ch. 13 - WACC and NPV Och, Inc., is considering a project...Ch. 13 - Prob. 17QPCh. 13 - Flotation Costs Goodbye, Inc., recently issued new...Ch. 13 - Calculating the Cost of Equity Floyd Industries...Ch. 13 - Firm Valuation Schultz Industries is considering...Ch. 13 - Prob. 21QPCh. 13 - Flotation Costs and NPV Photochronograph...Ch. 13 - Flotation Costs Trower Corp. has a debt-equity...Ch. 13 - Project Evaluation This is a comprehensive project...Ch. 13 - Prob. 1MCCh. 13 - Prob. 2MCCh. 13 - Go to www.reuters.com and find the list of...Ch. 13 - You now need to calculate the cost of debt for...Ch. 13 - You now have all the necessary information to...Ch. 13 - You used Tesla as a representative company to...
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