maturity and $1,000 face value and 1,100 Market price. The company's 100,00 share of preferred2: ABC Corporation has 10,000 bonds outstanding with 6% annual coupon rate, 8 years tostock that pays $3annual dividend and sell for $30 per share. The Company's 500,000 shares ofmarket return is 12%. Assuming a 40% tax rate, what is the company's WACC? (8points)common stock sell for $25 per share and have a beta of 1.5. The risk-free rate is 4%, and the

Answered: maturity and $1,000 face value and…

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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Gamma Corporation just paid a dividend of $3.00 per share on its common stock. Dividends are expected to grow at an annual rate of 8% for next two years and then at 3% thereafter. If you want minimum return of 10%, what is the most that you would be willing to pay for a share of Gamma Corporation today? o earn a O A. $51.29 O B. $49.99 O C. $48.39 O D. $53.24
Company A wants to calculate its WACC. It has just issued a 18-year, 8% coupon, non-callable bond at par value. A's current stock price is $21 and A just paid s $0.6 per share dividend. A's dividend payment is expected to grow at a constant rate of 7% a year. A wants to keep a debt-to-capital ratio of 60%. Tax rate is 25%. If A does not have preferred stock and floatation costs, what is its WACC (please report WACC as a decimal number with four decimal places, such as 0.0562)?
Kl. 259.
A company is an all-equity firm that has projected earnings before interest and taxes, $490,000, forever The current cost of equity is 16% and the tax rate is 21%. The company is in the process of issuing $1,000,000 of bonds at par that carry a 6% annual coupon. What is the levered value of the firm? O a. $2,424,125 O b. $2,363,849 O c. $2,142,793 O d. $2,629,375
A full equity firm has 5,000 shares outstanding worth $7 each. They are planning on issuing $10,000 of new perpetual debt at the 8% market rate of interest and using the proceeds to buy up stock. The effective tax rate is 25%. What is the change in the share price if they make the debt for equity exchange? Multiple Choice O $.50 per share $.20 per share $.80 per share $.16 per share
Cotton On Ltd. currently has the following capital structure:Debt: $3,500,000 par value of outstanding bond that pays annually 10% coupon rate with an annualbefore-tax yield to maturity of 12%. The bond issue has face value of $1,000 and will mature in 20years.Ordinary shares: $5,500,000 book value of outstanding ordinary shares. Nominal value of each shareis $100. The firm plan just paid a $8.50 dividend per share. The firm is maintaining 4% annual growthrate in dividends, which is expected to continue indefinitely.Preferred shares: 45,000 outstanding preferred shares with face value of $100, paying fixed dividendrate of 12%.The firm's marginal tax rate is 30Calculate the current price of the preferred share if the average return of the shares in the sameindustry is 10%
MF Corporation has an ROE of 12% and a plowback ratio of 60%. The market capitalization rate is 10%. Required: a. If the coming year's earnings are expected to be $1.50 per share, at what price will the stock sell? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. b. What price do you expect MF shares to sell for in three years? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. a. Price b. Price $ $ 43.00 X 26.40
Cotton On Ltd. currently has the following capital structure: Debt: $3,500,000 par value of the outstanding bond that pays annually 10% coupon rate with an annual before-tax yield to maturity of 12%. The bond issue has face value of $1,000 and will mature in 20 years. Ordinary shares: $5,500,000 book value of outstanding ordinary shares. Nominal value of each share is $100. The firm plan just paid an $8.50 dividend per share. The firm is maintaining 4% annual growth rate in dividends, which is expected to continue indefinitely. Preferred shares: 45,000 outstanding preferred shares with face value of $100, paying fixed dividend rate of 12%. The firm's marginal tax rate is 30%. Required: Calculate the current price of the preferred share if the average return of the shares in the same industry is 10%
Kline Construction is an all-equity firm that has projected perpetual EBIT of $376,000. The current cost of equity is 13.7 percent and the tax rate is 21 percent. The company is in the process of issuing $992,000 worth of perpetual bonds with an annual coupon rate of 5.5 percent at par. What is the value of the levered firm? Multiple Choice $1,482,044 $2,168,175 $1,936,600 $2,376,495 $1,829,684
Cotton On Ltd. currently has the following capital structure:Debt: $3,500,000 par value of outstanding bond that pays annually 10% coupon rate with an annual before-tax yield to maturity of 12%. The bond issue has face value of $1,000 and will mature in 20 years.Ordinary shares: $5,500,000 book value of outstanding ordinary shares. Nominal value of each shareis $100. The firm plan just paid a $8.50 dividend per share. The firm is maintaining 4% annual growthrate in dividends, which is expected to continue indefinitely.Preferred shares: 45,000 outstanding preferred shares with face value of $100, paying fixed dividendrate of 12%.The firm's marginal tax rate is 30%.Required:a) Calculate the current price of the corporate bond? b) Calculate the current price of the ordinary share if the average return of the shares in the sameindustry is 9%? c) Calculate the current price of the preferred share if the average return of the shares in the sameindustry is 10%

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