MGMT2023 Inc. pays taxes at the rate of 35% and has a D/E ratio of 2:3. There are no preferred equity. MGMT2023's bonds have face value of $1,000 will mature in the next 23 years with annual coupons of five and one-half percent and currently sells for 82% of its face. MGMT2023's stock has a beta of 1.4 and the required rate of return on the market portfolio is 12.4%. The applicable T-Bill rate is 7%. Determine MGMT2023's WACC.

MGMT2023 Inc. pays taxes at the rate of 35% and has a D/E ratio of 2:3. There are no preferred equity. MGMT2023's bonds have face value of $1,000 will mature in the next 23 years with annual coupons of five and one-half percent and currently sells for 82% of its face. MGMT2023's stock has a beta of 1.4 and the required rate of return on the market portfolio is 12.4%. The applicable T-Bill rate is 7%. Determine MGMT2023's WACC.

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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XYZ currently has common stock trading at $40 per share. XYZ just paid a dividend of $2.00 per share, which is expected to grow at a constant rate of 5%. XYZ's beta is 1.5, the risk-free rate is 2%, and the market return is expected to be 8%. The pre-tax yield on XYZ's bonds is 7%. XYZ's finance department believes that new stock would require a premium of 5% over their own bond yield. Flotation cost for issuing new stock is 10%. Compute the cost of retained earnings using the bond yield plus risk premium approach (show your answer in percent, and to 2 decimal places. Example: 9.62%).
Air Asia has 1.4 million shares of stock outstanding. The stock currently sells for $20 pershare. The firm’s debt is publicly traded and was recently quoted at 93% of face value. Ithas a total face value of $5 million, and it is currently priced to yield 11%. The risk-freerate is 8%, and the market risk premium is 7%. You’ve estimated that Air Asia has a betaof 0.74. If the corporate tax rate is 34%, what is the Weighted Average Cost of Capital ofAir Asia?
Westlake Company's stock has an estimated beta of 1.5 and the company just paid a dividend of $2 per share. Westlake is expected to grow its dividends at 5% p.a. indefinitely. The risk-free interest rate is 4% per annum, and the estimated market risk premium is 6%. 1. Use the CAPM to calculate Westlake' required rate of return. 2. Estimate Westlake's intrinsic value per share.
Company A just paid dividends of $5 per share. Company A will increase its dividends by 5% every year forever. Company A pays dividends once per year, at the end of the year. The standard deviation for Company A’s stock returns is 35% and its covariance with the market is 0.15. The expected return on the market portfolio is 25%, and the standard deviation of the market portfolio is 35%. Bond yield for government bonds is 5%. According to dividend discount model and the capital asset pricing model to estimate the appropriate discount rate, What should be Company A’s share price?
Steve's Specialties, Inc. paid its dividend yesterday, which as $3.00. The dividend has been growing at a rate of 0.035 and is expected to continue indefinitely at that rate. Steve's common stock is currently trading at 24.00 per share. The firms beta is 0.88. Treasuries (T-bills) are currently yielding 0.030, Average return on the market is 0.10. Using the DCF approcah, what is steves cost of retained earnings?
Break-even sales Currently, the unit selling price of a product is $270, the unit variable cost is $220, and the total fixed costs are $520,000. A proposal is being evaluated to increase the unit selling price to $300. a. Compute the current break-even sales (units).fill in the blank 1 of 1 units b. Compute the anticipated break-even sales (units), assuming that the unit selling price is increased and all costs remain constant.fill in the blank 1 of 1 units
Paul Sharp is CFO of Fast Rocket Inc. He tries to determine the cost of equity financing for his company. The stock has a beta of 1.02. Paul estimated that the market return is 6.48%. The current rate for 10-year Treasury Bonds is 2.95%. Calculate cost of common equity financing using CAPM -- SML formula
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%?
XYZ currently has common stock trading at $40 per share. XYZ just paid a dividend of $2.00 per share, which is expected to grow at a constant rate of 5%. XYZ's beta is 1.5, the risk-free rate is 2%, and the market return is expected to be 8%. The pre-tax yield on XYZ's bonds is 7%. XYZ's finance department believes that new stock would require a premium of 5% over their own bond yield. Flotation cost for issuing new stock is 10%. Compute the cost of retained earnings using the bond yield plus risk premium approach (show your answer in percent, and to 2 decimal places. Example: 9.62%). Question 4 options:
Velma inc. pays taxes at the rate of 35% and has a D/E ratio of 2:3. There are no preferred equity. Velma bonds have a face value of 1000 will mature in the next 23 years with annual coupons of 5 1/2% and currently sells for 82% of its face value. Velma inc stock has a better of 1.4 and required rate of return on the market portfolio is 12% the applicable T bill rate is 7%. Determine the WACC.
Stock in Daenerys Industries has a beta of 0.97. The market risk premium is 9.5 perc and T-bills are currently yielding 4 percent. The company's most recent dividend was per share, and dividends are expected to grow at a 6 percent annual rate indefinite the stock sells for $38 per share, what is your best estimate of the company's co equity?
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?

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