b. Jade Works maintains a debt-equity ratio of 0.65 and has a tax rate of 32 percent. The firm does not issue preferred stock. The pre-tax cost of debt is 9.8 percent. There are 25,000 shares of stock outstanding with a beta of 1.2 and a market price of RM19 a share. The current market risk premium is 8.5 percent and the current risk-free rate is 3.6 percent. This year, the firm paid an annual dividend of RM1.10 a share and expects to increase that amount by 2 percent each year. Required: Using an average expected cost of equity, what is the weighted average cost of capital?
b. Jade Works maintains a debt-equity ratio of 0.65 and has a tax rate of 32 percent. The firm does not issue preferred stock. The pre-tax cost of debt is 9.8 percent. There are 25,000 shares of stock outstanding with a beta of 1.2 and a market price of RM19 a share. The current market risk premium is 8.5 percent and the current risk-free rate is 3.6 percent. This year, the firm paid an annual dividend of RM1.10 a share and expects to increase that amount by 2 percent each year. Required: Using an average expected cost of equity, what is the weighted average cost of capital?
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
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Transcribed Image Text:b. Jade Works maintains a debt-equity ratio of 0.65 and has a tax rate of 32 percent. The
firm does not issue preferred stock. The pre-tax cost of debt is 9.8 percent. There are
25,000 shares of stock outstanding with a beta of 1.2 and a market price of RM19 a
share. The current market risk premium is 8.5 percent and the current risk-free rate is
3.6 percent. This year, the firm paid an annual dividend of RM1.10 a share and
expects to increase that amount by 2 percent each year.
Required:
Using an average expected cost of equity, what is the weighted average cost of
capital?
c. Below is the balance sheet for Bersatu Corporation. There are 11,000 shares of stock
outstanding. The company has declared a dividend of RM1.60 per share. The stock
goes ex dividend tomorrow. Ignore any tax effects.
Market Value Balance Sheet
RM 42,500
280,000
RM 322,500
Cash
Fixed Aset
Equity
Total
RM322,500
RM322,500
Total
Required:
i. What is price of the stock selling for today.
ii. Calculate the stock selling tomorrow.
iii. Bersatu-Teguh Corporation has announced it is going to repurchase RM9,200
worth of stock. Calculate the shares outstanding.
iv. Calculate price per share after the repurchase
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