FOUNDATIONS OF FINANCE-MYFINANCELAB
10th Edition
ISBN: 9780135160619
Author: KEOWN
Publisher: PEARSON
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Chapter 9, Problem 9SP
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The common stock for Hightower Corporation currently sells for $62. If a new issue is sold, the flotation costs will be 6 percent. The company pays 50percent of its earnings in dividends (and expects to continue to do so), and a $4 dividend was recently paid. Earnings per share 5 years ago were $5.Earnings are expected to continue to grow at the same rate as during the past 5 years. The firm's marginal tax rate is 30 percent. Calculate the cost of (a)internal equity and (b) external equity.
S Corp. is expected to pay a $2.55 dividend at year end, the dividend is expected to grow at a constant rate of 4.50% a year, and the common stock currently sells for $35 a share. The before-tax cost of debt is 5.50%, and the tax rate is 40%. The target capital structure consists of 40% debt and 60% common equity. What is the company’s WACC? Do not round your intermediate calculations
Rian Corporation is currently working without using debt. The estimated operating profit per year is $16.065,180.00 while the equity capitalization rate (ke) is 18% pa. In the coming year, Rian is considering replacing some of his shares with a debt of $50 million, with an interest rate of 15% per annum.
Question:
a. Calculate the value of own capital capitalization (CS), the total capitalization value of the company (V), and the overall capitalization rate (ko) using the Net Income Approach.
b. Calculate the amount of equity capitalized value, total capitalization value of the company, and overall capitalization rate using the traditional approach, if additional debt causes the equity capitalization rate (ke) to increase to 20%.
c. Draw a graph of the two approaches.
Chapter 9 Solutions
FOUNDATIONS OF FINANCE-MYFINANCELAB
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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