Estimate the Cost of Capital for Company XYZ based on the information below.$50.00$1.60Stock price:Dividend:Beta:1.29Shares outstanding:5-year dividend growth:100,000,0007.55%Risk-free rate:0.60%Market risk premium:7.00%Debt Information (bonds outstanding)Book Value"Quoted Price"MaturityYTM$800,000,0003/15/20254.0%99.00$200,000,0002/1/20274.5%130.00$500,000,0009/1/20425.0%95.00$900,000,00010/15/20445.5%90.00

Cost of equity is calculated using the Capital Asset Pricing Model.

Answered: Estimate the Cost of Capital for…

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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Question 1Firm A’s capital structure contains 20% debt and 80% equity. Firm B’s capital structurecontains 50% debt and 50% equity.Both firms pay 7% annual interest on their debt. Firm A’s shares have a beta of 1.0and Firm B’s beta of 1.375. The risk-free rate of interest equals 4%, and the expectedreturn on the market portfolio equals 12%. RequiredA. Calculate the WACC for each firm assuming there are no taxes.B. Recalculate the WACC figures assuming that the two firms face a marginaltax rate of 34%. What do you conclude about the impact of taxes from yourWACC calculations? C. Explain the simplifying assumptions managers make when using WACC asa project discounting method and discuss some of the common pitfallswhen using WACC in capital budgeting.
Gillette Corporation will pay an annual dividend of $ 0.63 one year from now. Analysts expect this dividend to grow at 1 1.1 % per year thereafter until the 6th year. Thereafter, growth will level off at 1.6 % per year. According to the dividend- discount model, what is the value of a Gillette share if the firm's equity cost of capital is 8.4 %? Question content area bottom Part 1 The value of a Gillette share is $ enter your response here. (Round to the nearest cent.)
Given the following information: Percent of capital structure: Debt Preferred stock Common equity (retained earnings) Additional information: Bond coupon rate Bond yield to maturity Dividend, expected common Dividend, preferred Price, common Price, preferred Flotation cost, preferred Growth rate Corporate tax rate 13% 11% Debt Preferred stock Common equity (retained earnings) Weighted average cost of capital $ 7.00 $ 14.00 $ 70.00 $110.00 $ 2.50 30% 10% 5 85 Calculate the Hamilton Corp's weighted cost of each source of capital and the weighted average cost of capital. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Weighted Cost %
Railsplitters, Inc. has the following information for its capital structure: Instrument: Amount Issued Current Price YTM Bond A $500 Million 100.82 4.36% Bond B $350 Million 101.36 4.49% Common Stock 42.5 Million Shares $28.21 per share E(R ) Market = 8.65% β = 1.27 Expected Dividend = $1.95 Rf = 2.10% Growth Rate = 2.75% Given this information, if the tax rate of the firm is 30%, what is the after-tax cost of debt?
What is the WACC for a company with the following information: Equity Information: 50 million shares, $80 per share, Beta = 1.15, Market risk premium =9%, Risk-free rate = 5%. Debt Information: 1 million outstanding bonds with a face value of $1,000 each. Current Price = $1,100, Coupon rate = 9%, semiannual coupons, 15 years to maturity Tax rate = 20%
With the market yield on preferred stock of 8% and a proposed annual dividend rate of 7.5% on a $100 par value, what is the component cost of capital for a new preferred stock issue if flotation costs of 16% are assumed? a. 8.93% b. 9.28% c. 9.52% d. 8.70%
The following financial information is available on Rawls Manufacturing Company: Current per share market price $48.00 Current per share dividend $3.50 Current per share earnings $6.00 Beta 1.1 Expected rate of return on market 12.0% Risk-free rate 6.0% Expected long-term growth rate 5.0% Rawls can issue new common stock to net the company $44 per share. Determine the cost of external equity capital using the dividend capitalization model approach. (Compute the answer to the nearest 0.1%.) a 12.6% b. 14.4% c.13.4% d.12.7%
number of outstanding shares100 000Earnings300 000Retention ratio60%91-day Treasury bill rate6%Market risk premium8%UFSK Beta1.2Dividend growth rate stable phase5%Bonds outstanding5 000Par value per bond1000Semi-annual coupon rate on bonds6%Bond yield to maturity8%Bond years remaining to maturity4Corporate tax rate30%Additional informationUFSK limited recently paid a dividendUFSK recently signed a deal and expects a super normal growth in earnings. The company expects earnings to grow by 8% for the first two years then decline by 2% in the following year, there after a stable growth of 5% is expected into the future.Required:Ascertain the market value of UFSK limited equity.
Estimate a reasonable intrinsic stock price per share as of 01/01/2023 for private Manufacturing Company A given the information in the table below. Also assume that the company has a 10.50% weighted average cost of capital, $5,542 million excess cash holdings, $25,000 million market value of debt, 1,000 million shares outstanding, and 2.0% FCF terminal growth rate starting at the end of 2027. Assume that the cash flows depicted in the table below occur at the end of each year (i.e., -600 is FCF1 and 16,500 is FCF5).
Financials of X Ltd are as follows. 10% Debt 6500; Current Market Price 80.21; Equity Beta 1.25; Equity Capital (Rs 10) 1900; Market Risk Premium 6; PAT 1235; Retained Earnings 4100; Risk Free Return 7%; Tax 35%. Find market value added. a. Rs 9329.30 b. Rs 9932.90 c. Rs 9239.90 d. Rs 9329.90
Answer the following questions given the information below: Equity Information 40 million shares $100 per share Beta = 1.15 Market risk premium = 8% Risk-free rate = 3% Debt Information $1 billion in outstanding debt (face value) YTM = 9% What is the cost of equity? What is the cost of debt? What is the after-tax cost of debt? What are the capital structure weights? What is the WACC?

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