A company has determined that its optimal capital structure consists of 34 percent debt and the rest is equity. Given the following information, calculate the firm's weighted average cost of capital. Rd = 7.8 %; Tax rate = 28 %: Po = $ 39.01; Growth = 5.1%; and D1 = $ 1.02. Show your answer to the nearest .1%

A company has determined that its optimal capital structure consists of 34 percent debt and the rest is equity. Given the following information, calculate the firm's weighted average cost of capital. Rd = 7.8 %; Tax rate = 28 %: Po = $ 39.01; Growth = 5.1%; and D1 = $ 1.02. Show your answer to the nearest .1%

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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Calculation of individual costs and WACC Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 40% long-term debt, 10% preferred stock, and 50% common stock equity (retained earings, new common stock, or both). The firm's tax rate is 24%. Debt The firm can sell for $1000 a 11-year, $1,000-par-value bond paying annual interest at a 12.00% coupon rate. A flotation cost of 4% of the par value is required. Preferred stock 8.50% (annual dividend) preferred stock having a par value of $100 can be sold for $98. An additional fee of $3 per share must be paid to the underwriters. Common stock The firm's common stock is currently selling for $80 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.25 ten years ago to the $4.43 dividend payment, Do. that the company just recently…
A firm has only two funding sources, debt and equity. Their percentage of debt is 58%, their tax rate is 21.6%, and their pretax cost of debt is 3.05%, If the required return on their equity is 10.39%, then what is their weighted average cost of capital? State your answer as a percentage with two decimal places (i.e., 13.21, not.1321).
You have been assigned to calculate the Weighted-Average-Cost-of-Capital (WACC) for your small firm The company has three sources of long-term capital. Its marginal tax rate is 21% First, there are 2,354.000 shares of common stock outstanding which are currently trading at $37.51 per share. You estimate that your firm hasa beta of 0.90, and that the long-term return in equity markets will be 11.50%. The current return on short-term T-Bills is 2.25% Second, the firm has 190,000 shares of preferred stock outstanding. These shares pay annual (perpetual) dividends of $7.00 per share, and are currently selling for $94.62. Third, there is an issue of 62.500 coupon bonds outstanding. These bonds have a face value of $1.000, mature in seventeen years, and pay 5,74% annual coupons These instruments are currently trading for $1,054.23. Based on the data, what portion of the market value of the firm's assets are financed with debt? Ⓒ$1.29% 38.27% 37.03% Q61.73% 42.73%
URGENT PLEASE d. Calculate the firm's weighted average cost of capital using the capital structure weights shown in the following table . (Round answer to the nearest 0.01%)
K Calculation of individual costs and WACC Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 35% long-term debt, 15% preferred stock, and 50% common stock equity (retained earnings, new common stock, or both). The firm's tax rate is 29%. Debt The firm can sell for $1025 a 12-year, $1,000-par-value bond paying annual interest at a 7.00% coupon rate. A flotation cost of 2.5% of the par value is required. Preferred stock 9.00% (annual dividend) preferred stock having a par value of $100 can be sold for $96. An additional fee of $5 per share must be paid to the underwriters. Common stock The firm's common stock is currently selling for $60 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.70 ten years ago to the $4.40 dividend payment, Do, that the company just recently…
Assume that a firm has a cost of debt capital of 0.06, a company tax rate of 0.2, a market value of debt of $10 million, a cost of equity capital of 0.14, and a market value of equity of $10 million. Also assume that the proportion of company taxes claimed by shareholders is 0.5. Which of the following values is the closest to this firm's weighted average cost of capital?
Hello. I need help with the following question please. Taylor Company has a target capital structure that consists of $3.3 million of debt capital, $2.5 million of preferred stock financing, and $2.8 million of common equity. The corresponding weights of its debt, preferred stock, and common equity financing that should be used to compute its weighted cost of capital (rounded to the nearest wo decimal places) are: 38.37%, 29.07%, and 32.56%, respectively 32.04%, 34.53%, and 33.43%, respectively 29.07%, 32.56%, and 38.37%, respectively 34.53%, 33.43%, and 32.04%, respectively Consider the following case: Mason Limited, a key competitor of Taylor Company in the construction field, has a capital structure consisting of 45% debt, 5% preferred stock, and 50% common equity. Concerned that its cost of capital may put it at a competitive disadvantage vis-a-vis the Taylor Company, a Mason analyst has been tasked with computing and comparing the weighted costs…
If Bulldogs Inc. pays taxes at the rate of 40%, what is the firm’s weighted average cost of capital? (In percentage, type the percentage sign on your answer)
Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 40% long-term debt, 15% preferred stock, and 45% common stock equity (retained earnings, new common stock, or both). The firm's tax rate is 26%. Debt The firm can sell for $1005 a 13-year, $1,000-par-value bond paying annual interest at a 6.00% coupon rate. A flotation cost of 2.5% of the par value is required. Preferred stock 7.00% (annual dividend) preferred stock having a par value of $100 can be sold for $98. An additional fee of $5 per share must be paid to the underwriters. Common stock The firm's common stock is currently selling for $80 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.50 ten years ago to the $4.92 dividend payment, D0, that the company just recently made. If…
Calculation of individual costs and WACC Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 40% long-term debt, 15% preferred stock, and 45% common stock equity (retained earnings, new common stock, or both). The firm's tax rate is 28%. Debt The firm can sell for $1015 a 19-year, $1,000-par-value bond paying annual interest at a 9.00% coupon rate. A flotation cost of 2.5% of the par value required. Preferred stock 7.50% (annual dividend) preferred stock having a par value of $100 can be sold for $98. An additional fee of $5 per share must be paid to the underwriters. Common stock The firm's common stock is currently selling for $60 per share. The stock has paid a dividend that has gradually increased for many years, rising from $3.00 ten years ago to the $4.44 dividend payment, Do, that the company just recently made.…
K. Bell Jewelers wishes to explore the effect on its cost of capital of the rate at which the company pays taxes. The firm wishes to maintain a capital structure of 30% debt, 20% preferred stock, and 50% common stock. The cost of financing with retained earnings is 13% the cost of preferred stock financing is 9%, and the before-tax cost of debt financing is 7%. Calculate the weighted average cost of capital (WACC) given a tax rate of 21%.
Calculation of individual costs and WACC: Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 35% long-term debt, 10% preferred stock, and 55% common stock equity (retained earnings, new common stock, or both). The firm's tax rate is 28%. debt The firm can sell for $1010 a 14-year, $1,000-par-value bond paying annual interest at a 7.00% coupon rate. A flotation cost of 2.5% of the par value is required. Preferred stock 7.00% (annual dividend) preferred stock having a par value of $100 can be sold for $88. An additional fee of$4 per share must be paid to the underwriters. Common stock The firm's common stock is currently selling for $70 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.25 ten years ago to the $3.67 dividendpayment, D0, that…

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