Please correct answer and don't used hand raiting 16.The following problem will be used to answerthe next five questions.The Doug and Bob Corporation is calculating itsWACC. Its 200,000 bonds have a 5% coupon, paidsemi-annually, a current maturity of 30 years, andsell for a quoted price of 105. The firm's 400,000shares of preferred stock (par $100) pays a 6.5%annual dividend and currently sells for $90. Dougand Bob is a constant growth firm which just paid adividend of $2.00 (Do), sells for $40.00 per share; ithas 19,000,000 shares outstanding, and the commonstock has an estimated growth rate of 9%. Thefirm's beta is 1.5, and the firm's marginal tax rate is20%. The return on the market is 12% and the riskfree rate is 5%.What is the firm's (approximate) after-tax cost ofdebt financing?3.75%**a3.31%c)4.68%d)3.24%2.81%

To calculate the after-tax cost of debt financing step by step.Given:- Bond face value of 200,000…

Answered: 16. The following problem will be used…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter18: Initial Public Offerings, Investment Banking, And Capital Formation

Section: Chapter Questions

Problem 9MC

See similar textbooks

Similar questions

Use the appendix to answer the questions below. The company trades at $13/share and pays 6.5% on 10- year bonds. The T-bill rate is 2.5%, has a beta of 1.2, and the market return is 9%; the dividend payout policy has 1 million shares outstanding the dividend payout policy is 35%. Should I buy the stock? Why? (use Gordon's growth model in your calculations). (10 points) 31. Calculate the Sustainable growth rate. 32. Calculate the cost of equity. 33. Calculate the cost of capital. 34. Calculate the expected price of the stock. 35. What will be your recommendation?
Twill Consulting has total assets of $1,810. These assets are expected to increase in value to either $1,900 or $2,400 by next year. The company has a pure discount bond outstanding with a face value of $2,000. This bond matures in one year. Currently, U.S. Treasury bills are yielding 5.5 percent. What is the value of the equity in this firm? Multiple Choice $7.24 $6.98 $7.89 $6.67 $7.08
Please solve step by step for clarity, thank you!
Suppose that you opened a margin account (margin requirement = 60%) with your brokerage firm. Through this account, you invested in 100 shares of Mercer Inc. stocks at $80 per share a year ago. While you hold the stocks (1 year), the firm paid out $0.50 dividend per share every quarter. If you sell the stocks at $90 per share today, what is the percentage return for your investment? Assume that the commission rate is 1% of the purchase and sale price, and you need to pay 2% interest on the borrowed fund.
Suppose that Brue currently is selling at $50 per share. You buy 900 shares using $36,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 7%. What is the rate of return on your margined position if Brue is selling after ONE year at (a)$56; (b)$50; and (c)$44?
Please answer the following, based on the information provided for the firm ABC: the company finances its operations and growth opportunities, using common equity, debt, and preferred equity. It issued a 10 year, 6 percent (coupon rate of 6%) bonds 3 years ago. This annual-coupon bond is currently selling for $980, and its face value is $1000. What comes closest to ABC's pre-tax cost of debt? O O O O O 5% 3% 4% 8% 6%
The Ashford Twins hired you as a consultant to estimate the company's WACC. You have obtained the following information. (1) The company's noncallable bonds mature in 20 years, have a coupon rate of 8.00% paid annually, a par value of $1,000, and a current market price of $950. (2) The company's tax rate is 21%. (3) The required rate of return on the company's common stock based on CAPM is 9.5%. (4) The target capital structure consists of 40% debt, with the remainder comprised of common equity. What is its WACC? (Ch. 10) Group of answer choices 7.56% 7.84% 6.42% 9.11% 8.40%
Golden Finance Ltd is a small investment company. It is looking for financial assets to add to its investment for 2023. As an investment officer of Golden Finance, you are interested in the following assets: • A preferred share issued by Apple Company, which pays a fixed dividend rate of 13%, face value of $100. . • A non-callable bond issued by Orange Company, which pays 9% coupon rate semi-annually, with face value $1000. The bond will mature in 20 years and has a yield to maturity of 8%. The Company Management also requested you to evaluate two mutually exclusive investment portfolios with the following cash flows to recommend one for the next year's investment: Year 2022-Initial Investment Future cash flow 2023 2024 2025 2026 Portfolio A ($) Portfolio B($) 70,000 80,000 25,000 30,000 40,000 45,000 35,000 40,000 50,000 55,000 Required: 1. Compute the current value of Apple Company's preferred share, given the rate of return for the same type of shares in the same industry is 12% 2.…
This question is not incomplete. you need to calculate the cost of equity. I need Answer for the question number d and e. thanks Blooming Ltd. currently has the following capital structure:Debt: $2,500,000 par value of outstanding bond that pays annually 12% coupon rate with an annual before-tax yield to maturity of 10%. The bond issue has face value of $1,000 and will mature in 25 years.Ordinary shares: 65,000 outstanding ordinary shares. The firm plans to pay a $7.50 dividend per share in the next financial year. The firm is maintaining 3% annual growth rate in dividend, which is expected to continue indefinitely.Preferred shares: 40 000 outstanding preferred shares with face value of $100, paying fixed dividend rate of 14%.Company tax rate is 30% Required: Complete the following tasks:a) Calculate the current price of the corporate bond? b) Calculate the current price of the ordinary share if the average return of the shares in the same industry is 9%? c) Calculate the current value…
Please help me with this question answer general Accounting
You have finally saved $10,000 and are ready to make your first investment. You have the following three alternatives for investing that money: • Capital Cities ABC, Inc., bonds, which have a par value of $1,000 and a coupon interest rate of 8.75 percent, are selling for $1,314 and mature in 12 years. • Southwest Bancorp preferred stock is paying a dividend of $2.50 and selling for $25.50. • Emerson Electric common stock is selling for $36.75. The stock recently paid a $1.32 dividend, and the firm's dividend growth rate of last five years is 4 %. The firm expects to grow at the same rate for the foreseeable future. Your required rates of return for these investments are 6 percent for the bond, 7 percent for the preferred stock, and 15 percent for the common stock. Using this information, answer the following questions. a. Calculate the value of each investment based on your required rate of return. b. Which investment would you select? Why?
A4)

SEE MORE QUESTIONS

Recommended textbooks for you

Intermediate Financial Management (MindTap Course…

Finance

ISBN:

9781337395083

Author:

Eugene F. Brigham, Phillip R. Daves

Publisher:

Cengage Learning