EBK FOUNDATIONS OF FINANCE
10th Edition
ISBN: 9780134897288
Author: PETTY
Publisher: VST
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Chapter 9, Problem 7SP
Summary Introduction
To determine: The cost of capital of the stock.
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XYZ is trying to estimated its cost of capital and needs to know the cost of preferred stock. XYZ can issue new preferred stock with a $100 par value and a 11% dividend. New preferred stock would have a price of $97. What is the cost of preferred stock for XYZ?
Your Answer:
Chia Chia, Inc. stock is currently trading at $90 a share. The firm feels that the desirable price range for its stock should be $25-$30. Which of the following option is the most appropriate for the
firm to achieve the desired price range?
O liquidating dividend.
stock dividend.
special dividend.
cash dividend.
The Turnip Company plans to issue preferred stock. Currently the company stock sells for $110. Once new stock is issued the turnip company would receive only $90. The dividend rate is 8% and the per value of the stock is $100. Compute the cost of capital of the stock to your firm. Show all work.
Chapter 9 Solutions
EBK FOUNDATIONS OF FINANCE
Ch. 9 - Define the term cost of capital.Ch. 9 - Prob. 2RQCh. 9 - Why do firms calculate their weighted average cost...Ch. 9 - Prob. 4RQCh. 9 - Prob. 5RQCh. 9 - Prob. 6RQCh. 9 - Prob. 7RQCh. 9 - Prob. 1SPCh. 9 - Prob. 2SPCh. 9 - (Cost of equity) In the spring of 2018, the Brille...
Ch. 9 - Prob. 4SPCh. 9 - Prob. 5SPCh. 9 - Prob. 6SPCh. 9 - Prob. 7SPCh. 9 - (Cost of internal equity) Pathos Co.s common stock...Ch. 9 - (Cost of equity) The common stock for the Bestsold...Ch. 9 - Prob. 10SPCh. 9 - Prob. 11SPCh. 9 - Prob. 12SPCh. 9 - a. Rework Problem 9-12 as follows: Assume an 8...Ch. 9 - (Capital structure weights) Wingate Metal...Ch. 9 - (Weighted average cost of capital) The capital...Ch. 9 - Prob. 17SPCh. 9 - Prob. 18SPCh. 9 - Prob. 19SPCh. 9 - (Divisional costs of capital and investment...Ch. 9 - Prob. 21SPCh. 9 - Prob. 2.1MCCh. 9 - If you were to evaluate divisional costs of...
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- A preferred stock from Duquesne Light Company (DQU-PRA) pays $2.10 in annual dividends. If the required rate of return on the preferred stock is 5.4 percent, what is the fair present value of the stock? Please show the solution/ formula used for me so i'll be able to understand it clearly. Thank youarrow_forwardTando Airlines has preferred stock outstanding that has a par value equal to $100. Preferred dividend payments equal 8 percent of the stock's par value. If Tando's preferred stock currently sells for $160,, what is the rate of return that preferred stockholders earn? What portion of this return is the dividend yield and what portion is the capital gains yield? (hint: think about the growth rate that is associated with preferred stock.)arrow_forwardAnle Corporation has a current stock price of 21.36 and is expected to pay a dividend of $1.15 in one year. Its expected stock price right after paying that dividend is $23.13. What is Anle's equity cost of capital? How much of Anle's equity cost of capital is expected to be satisfied by dividend yield and how much by capital gain? What is Anle's equity cost of capital? (Round to two decimal places.)arrow_forward
- Assume that a firm can issue preferred stock that has a $70 par value and pays a 15.0% annual dividend each year. The firm's investment bankers believe that investors will be willing to pay $84.00 per share and that flotation costs will be equal to $8.45 per share. Given this information, determine the difference between the investor's required rate of return, and the firm's cost of preferred stock. O 1.969%. O 1.398% O 1.683% O 2.541% O 2.224%arrow_forwardSolution is incorrect. Can you try again with this: Assume Evco, Inc. has a current stock price of $54.38 and will pay a $2.05 dividend in one year; its equity cost of capital is 11%. What price must you expect Evco stock to sell for immediately after the firm pays the dividend in one year to justify its current price?arrow_forwardYou are considering purchasing stock in Canyon Echo. You feel the company will increase its dividend at 4.2 percent indefinitely. The company just paid a dividend of $3.53 and you feel that the required return on the stock is 11.4 percent. What is the price per share of the company's stock?arrow_forward
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