Cunningham Corporation currently has 2 million equity shares outstanding trading at a price of $5 per share with a beta of 1.5. In addition, they have $3 million in outstanding debt ($3.3 million in current market value) with a current market value of $1100, a coupon rate of 6 percent (annual payments), and 8 years to maturity. If the market risk premium is 7 percent, the risk free rate is 2.5 percent, and the appropriate tax rate is 18 percent, what is Cunningham Corporation's WACC? Group of answer choices 12.51 percent 11.58 percent 11.00 percent 10.69 percent 7.86 percent

Cunningham Corporation currently has 2 million equity shares outstanding trading at a price of $5 per share with a beta of 1.5. In addition, they have $3 million in outstanding debt ($3.3 million in current market value) with a current market value of $1100, a coupon rate of 6 percent (annual payments), and 8 years to maturity. If the market risk premium is 7 percent, the risk free rate is 2.5 percent, and the appropriate tax rate is 18 percent, what is Cunningham Corporation's WACC? Group of answer choices 12.51 percent 11.58 percent 11.00 percent 10.69 percent 7.86 percent

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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Vestal Corp. has a beta of 1.3, the market risk premium is 7% and the risk-free rate of interest is 4%. Vestal's preferred stock pays a dividend of $4 each year and trades at a price of $40 per share. Vestal's debt trades with a yield to maturity of 8.5%. The market value of equity, preferred stock and debt for Vestal Corp. are $80 billion, $40 billion and $120 billion, respectively. What is Vestal's weighted average cost of capital if its tax rate is 30%?
Coffee Planet Inc considers an expansion project. It currently has 100 million outstanding shares trading at $20 per share. Equity has an estimated beta of 1.6. The risk-free rate is 4%, while the market risk premium is 5%. It also has 2,000,000 outstanding bonds with $1,000 par. The bonds are zero-coupon bond with ten years to maturity and are priced at 45.6386% of par (for yield, assume annual compounding). The corporate tax rate is 30%. The project will require an investment if $100 million and willproduce a net after tax cash flow of $17 million per year for 10 years. Should Coffee planet accept the project?
Coleman’s common stock is currently selling at $50 per share. Its last dividend (D0) was $4.19, and dividends are expected to grow at a constant rate of 5% in the foreseeable future. Coleman’s beta is 1.2, the yield on T-bonds is 7%, and the market risk premium is estimated to be 6%. For the own-bondyield-plus-risk-premium approach, the firm uses a 4% judgmental risk premium. Assume for now that Coleman Corp. does not plan to issue new shares of common stock. Find Coleman’s estimate cost of equity using: (a) the CAPM approach; (b) the dividend growth approach; and (c) the own-bond-yield-plus-judgmental-risk-premium method. What is your final estimate for the cost of equity, rs?
Westsyde Tool Company is expected to pay a dividend of $1.50 in the upcoming year. The risk-free rate of return is 6%, and the expected return on the market portfolio is 14%. Analysts expect the price of Westsyde Tool Company shares to be $22 a year from now. The beta of Westsyde Tool Company's stock is 1.1. Compute the intrinsic value of Westsyde Tool Company's stock. Round your answer to 2 decimal places, and enter your answer without the dollar sign.
Acort Industries has 8 million shares outstanding and a current share price of $43 per share. It also has long-term debt outstanding. This debt is risk free, is four years away from maturity, has an annual coupon rate of 8%, and has a $106 million face value. The first of the remaining coupon payments will be due in exactly one year. The riskless interest rates for all maturities are constant at 4.8%. Acort has EBIT of $80 million, which is expected to remain constant each year. New capital expenditures are expected to equal depreciation and equal $14 million per year, while no changes to net working capital are expected in the future. The corporate tax rate is 28%, and Acort is expected to keep its debt-equity ratio constant in the future (by either issuing additional new debt or buying back some debt as time goes on). a. Based on this information, estimate Acort's WACC. b. What is Acort's equity cost of capital? Question content area bottom a. Based on this…
Acort Industries has 10 million shares outstanding and a current share price of $43 per share. It also has long-term debt outstanding. This debt is risk free, is four years away from maturity, has an annual coupon rate of 6%, and has a $111 million face value. The first of the remaining coupon payments will be due in exactly one year. The riskless interest rates for all maturities are constant at 3.6%. Acort has EBIT of $92 million, which is expected to remain constant each year. New capital expenditures are expected to equal depreciation and equal $20 million per year, while no changes to net working capital are expected in the future. The corporate tax rate is 26%, and Acort is expected to keep its debt-equity ratio constant in the future (by either issuing additional new debt or buying back some debt as time goes on). a. Based on this information, estimate Acort's WACC. b. What is Acort's equity cost of capital? a. Based on this information, estimate Acort's WACC. The WACC is%.…
Assuming that the debt amount is $3 million, the preferred stock amount is $2 million and the equity amount is 55 million. The expected dividend payment of the company's common stock will be $3, the growth rate (continue forever) is 5% and the current market price is $60. In addition to this, the Par Bond has $1.000 facevalue and provides an 10% annual coupon, and the preferred stock of the company has $1.000 facevalue, the dividend rate is 8% and its current market price is $800. Find the cost of capital ( WACC) if the corporation tax rate is 40%.
Spartan Machinery stock trades at $60 per share with a beta of 1.5, an estimated market return of 12%, and a risk free rate of 5%. There are 20 million shares outstanding. The company has bonds with a face value $1 billion outstanding and a market value of $980 million. The coupon rate is 9% (semiannual coupons) and there are 10 years to maturity. The company has a tax rate of 38%. What is the WACC?
Acort Industries has 11 million shares outstanding and a current share price of $38 per share. It also has long-term debt outstanding. This debt is risk free, is four years away from maturity, has an annual coupon rate of 9%, and has a $115 million face value. The first of the remaining coupon payments will be due in exactly one year. The riskless interest rates for all maturities are constant at 5.4%. Acort has EBIT of $93 million, which is expected to remain constant each year. New capital expenditures are expected to equal depreciation and equal $19 million per year, while no changes to net working capital are expected in the future. The corporate tax rate is 23%, and Acort is expected to keep its debt-equity ratio constant in the future (by either issuing additional new debt or buying back some debt as time goes on). a. Based on this information, estimate Acort's WACC. b. What is Acort's equity cost of capital? a. Based on this information, estimate Acort's WACC. The WACC is%.…
LUVFINANCE, Inc. is estimating its WACC. It is operating at its optimal capital structure. Its outstanding bonds have a 12 percent coupon, paid semiannually, a current maturity of 17 years, and sell for $1,162. It has 100,000 bonds outstanding. The firm can issue new 20-year maturity semiannual bonds at par but will incur flotation costs of $50 per bond (Hint: the coupon rate on the new bonds = the YTM on existing bonds). The firm could sell, at par, $100 preferred stock that pays a 12 percent annual dividend that is currently selling for $120. The firm currently has 1,000,000 shares of preferred stock outstanding. Rollins' beta is 1.34, the risk-free rate is 1.77 percent, and the market risk premium is 6 percent. The common stock currently sells for $100 a share and there are 5,000,000 shares outstanding. The firm's marginal tax rate is 40 percent. What is the WACC?
A company currently pays a dividend of $1.8 per share (D0 = $1.8). It is estimated that the company's dividend will grow at a rate of 15% per year for the next 2 years, and then at a constant rate of 8% thereafter. The company's stock has a beta of 1.8, the risk-free rate is 9.5%, and the market risk premium is 6%. What is your estimate of the stock's current price? Do not round intermediate calculations. Round your answer to the nearest cent.
If Smolinski, Incorporated, were an all-equity company. it would have a beta of 1.05. The company has a target debt-equity ratio of .40. The expected return on the market portfolio is 10 percent and Treasury bills currently yield 3.8 percent. The company has one bond issue outstanding that matures in 22 years, a par value of $1,000, and a coupon rate of 6.7 percent. The bond currently sells for $1,085. The corporate tax rate is 25 percent. a. What is the company's cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the company's cost of equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the company's weighted average cost of capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Cost of debt b. Cost of equity c. WACC % de de de % %

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