CORPORATE FINANCE(LL)
11th Edition
ISBN: 9781260430011
Author: Ross
Publisher: MCG
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Textbook Question
Chapter 13, Problem 19QP
Calculating the
- a. Calculate the cost of equity using the
DDM method. - b. Calculate the cost of equity using the SML method.
- c. Why do you think your estimates in (a) and (b) are so different?
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Chapter 13 Solutions
CORPORATE FINANCE(LL)
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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- The Castle Company recently reported net profits after taxes of $15.8 million. It has 2.5 million shares of common stock outstanding and pays preferred dividends of $1 million a year. The company’s stock currently trades at $60 per share. Compute the stock’s earnings per share (EPS). What is the stock’s P/E ratio? Determine what the stock’s dividend yield would be if it paid $1.75 per share to common stockholders.arrow_forwardCrisp Cookware’s common stock is expected to pay a dividend of $3 a share at the end of this year (D1 = $3.00); its beta is 0.8. The risk-free rate is 5.2%, and the market risk premium is 6%. The dividend is expected to grow at some constant rate g, and the stock currently sells for $40 a share. Assuming the market is in equilibrium, what does the market believe will be the stock’s price at the end of 3 years (i.e., what is )?arrow_forwardConroy Consulting Corporation (CCC) has a current dividend of D0 = $2.5. Shareholders require a 12% rate of return. Although the dividend has been growing at a rate of 30% per year in recent years, this growth rate is expected to last only for another 2 years (g0,1 = g1,2 = 30%). After Year 2, the growth rate will stabilize at gL = 7%. What is CCC’s stock worth today? What is the expected stock price at Year 1? What is the Year 1 expected (1) dividend yield, (2) capital gains yield, and (3) total return? What is its expected dividend yield for the second year? The expected capital gains yield? The expected total return?arrow_forward
- CALCULATING THE WACC Here is the condensed 2019 balance sheet for Skye Computer Company (in thousands of dollars): Skyes earnings per share last year were 3.20. The common stock sells for 55.00. last years dividend (D0) was 2.10, and a flotation cost of 10% would be required to sell new common stock. Security analysts are projecting that the common dividend will grow at an annual rate of 9%. Skyes preferred stock pays a dividend of 3.30 per share, and its preferred stock sells for 30.00 per share. The firms before-lax cost of debt is 10%, and its marginal tax rate is 25%. The firms currently outstanding 10% annual coupon rate, long-term debt sells at par value. The market risk premium is 5%, the risk-free rate is 6%, and Skyes beta is 1.516. The firms total debt, which is the sum of the companys short-term debt and long-term debt, equals 1.2 million. a. Calculate the cost of each capital component, that is, the after-tax cost of debt, the cost of preferred stock, the cost of equity from retained earnings, and the cost of newly issued common stock. Use the DCF method to find the cost of common equity. b. Now calculate the cost of common equity from retained earnings, using the CAPM method. c. What is the cost of new common stock based on the CAPM? (Hint: Find the difference between r1 and rs as determined by the DCF method, and add that differential to the CAPM value for rs.) d. If Skye continues to use the same market-value capital structure, what is the firms WACC assuming that (1) it uses only retained earnings for equity and (2) if it expands so rapidly that it must issue new common stock?arrow_forwardReturn on Common Stock You buy a share of The Ludwig Corporation stock for $21.40. You expect it to pay dividends of $1.07, $1.1449, and $1.2250 in Years 1, 2, and 3, respectively, and you expect to sell it at a price of $26.22 at the end of 3 years. Calculate the growth rate in dividends. Calculate the expected dividend yield. Assuming that the calculated growth rate is expected to continue, you can add the dividend yield to the expected growth rate to obtain the expected total rate of return. What is this stock’s expected total rate of return (assume the market is in equilibrium with the required return equal to the expected return)?arrow_forward
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Dividend disocunt model (DDM); Author: Edspira;https://www.youtube.com/watch?v=TlH3_iOHX3s;License: Standard YouTube License, CC-BY