18. Assume ArcheGo has 2 million shares outstanding at a price of $15, and a debt with a book value of $10 million, trading at 120% of par value, and a yield to maturity of 7%. Given the marginal tax rate is 40% and the cost of equity is 14%, how would its WACC change if its stock price doubled? a) Decrease by 10.45% b) Decrease by 4. 46% c) Increase by 10.45% Increase by 4. 46% d)

18. Assume ArcheGo has 2 million shares outstanding at a price of $15, and a debt with a book value of $10 million, trading at 120% of par value, and a yield to maturity of 7%. Given the marginal tax rate is 40% and the cost of equity is 14%, how would its WACC change if its stock price doubled? a) Decrease by 10.45% b) Decrease by 4. 46% c) Increase by 10.45% Increase by 4. 46% d)

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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IBM expects to pay a dividend of $4 next year and expects these dividends to grow at 7% a year. The price of IBM is $90 per share. What is IBM's cost of equity capital? A. 9.65% B. 10.23% C. 12.36% D. 11.44% E. 10.89%
Dorpac Corporation has a dividend yield of 1.6%. Its equity cost of capital is 7.1%, and its dividends are expected to grow at a constant rate. a. What is the expected growth rate of Dorpac's dividends? b. What is the expected growth rate of Dorpac's share price? a. What is the expected growth rate of Dorpac's dividends? The growth rate will be _____ %. (Round to one decimal place.) Part 2 b. What is the expected growth rate of Dorpac's share price? What is the expected growth rate of Dorpac's share price? (Select the best choice below.)
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1. Your company’s stock sells for P50 per share, its last dividend was P2.00,its growth rate is a constant 5 percent, and the company will incur aflotation cost of 20 percent if it sells new common stock. What is the firm’scost of new equity, kn? 2. Iann-Jam Corporation has established a target capital structure of 40percent debt and 60 percent common equity. The current market price ofthe firm’s stock is P30; its last dividend was P2.20, and its expecteddividend growth rate is 8 percent. What will Iann-Jam’s marginal cost ofretained earnings be?
Your firm has $2,100,000 in stock assets with a duration of 12 and $900,000 in cash with a duration of 0. Your firm has issued debt with a present value of $1,700,000 and a duration of 16. The yield curve is flat at 4.35%. a) What is the value of equity? b) What is the duration of equity?
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Dorpac Corporation has a dividend yield of 1.4%. Its equity cost of capital is 7.8%, and its dividends are expected to grow at a constant rate. a. What is the expected growth rate of Dorpac's dividends? b. What is the expected growth rate of Dorpac's share price? a. What is the expected growth rate of Dorpac's dividends? The growth rate will be %. (Round to one decimal place.)

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