16. The following problem will be used to answer the next five questions. The Doug and Bob Corporation is calculating its WACC. Its 200,000 bonds have a 5% coupon, paid semi-annually, a current maturity of 30 years, and sell for a quoted price of 105. The firm's 400,000 shares of preferred stock (par $100) pays a 6.5% annual dividend and currently sells for $90. Doug and Bob is a constant growth firm which just paid a dividend of $2.00 (Do), sells for $40.00 per share; it has 19,000,000 shares outstanding, and the common stock has an estimated growth rate of 9%. The firm's beta is 1.5, and the firm's marginal tax rate is 20%. The return on the market is 12% and the risk free rate is 5%. What is the firm's (approximate) after-tax cost of debt financing? 3.75%** a 3.31% c) 4.68% d) 3.24% 2.81%
16. The following problem will be used to answer the next five questions. The Doug and Bob Corporation is calculating its WACC. Its 200,000 bonds have a 5% coupon, paid semi-annually, a current maturity of 30 years, and sell for a quoted price of 105. The firm's 400,000 shares of preferred stock (par $100) pays a 6.5% annual dividend and currently sells for $90. Doug and Bob is a constant growth firm which just paid a dividend of $2.00 (Do), sells for $40.00 per share; it has 19,000,000 shares outstanding, and the common stock has an estimated growth rate of 9%. The firm's beta is 1.5, and the firm's marginal tax rate is 20%. The return on the market is 12% and the risk free rate is 5%. What is the firm's (approximate) after-tax cost of debt financing? 3.75%** a 3.31% c) 4.68% d) 3.24% 2.81%
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Please correct answer and don't used hand raiting
Transcribed Image Text:16.
The following problem will be used to answer
the next five questions.
The Doug and Bob Corporation is calculating its
WACC. Its 200,000 bonds have a 5% coupon, paid
semi-annually, a current maturity of 30 years, and
sell for a quoted price of 105. The firm's 400,000
shares of preferred stock (par $100) pays a 6.5%
annual dividend and currently sells for $90. Doug
and Bob is a constant growth firm which just paid a
dividend of $2.00 (Do), sells for $40.00 per share; it
has 19,000,000 shares outstanding, and the common
stock has an estimated growth rate of 9%. The
firm's beta is 1.5, and the firm's marginal tax rate is
20%. The return on the market is 12% and the risk
free rate is 5%.
What is the firm's (approximate) after-tax cost of
debt financing?
3.75%**
a
3.31%
c)
4.68%
d)
3.24%
2.81%
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