== Reingaart Systems is expected to pay a $3.4 dividend at year end (D1 = $3.4), the dividend is expected to grow at a constant rate of 5.8% a year, and the common stock currently sells for $65 a share. The before-tax cost of debt is 7.8%, and the tax rate is 29%. The target capital structure consists of 56% debt and 44% common equity. What is the company's WACC if all equity is from retained earnings? O 8.55% O 7.65% O 7.95% O 7.35% 8.25%

== Reingaart Systems is expected to pay a $3.4 dividend at year end (D1 = $3.4), the dividend is expected to grow at a constant rate of 5.8% a year, and the common stock currently sells for $65 a share. The before-tax cost of debt is 7.8%, and the tax rate is 29%. The target capital structure consists of 56% debt and 44% common equity. What is the company's WACC if all equity is from retained earnings? O 8.55% O 7.65% O 7.95% O 7.35% 8.25%

Name: Reingaart Systems is expected to pay a $3.4 dividend at year end (D1
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Description: Reingaart Systems is expected to pay a $3.4 dividend at year end (D1 = $3.4),the dividend is expected to grow at a constant rate of 5.8% a year, and the commonstock currently sells for $65 a share. The before-tax cost of debt is 7.8%, and the taxrat

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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Empire Electric Company (EEC) uses only debt and common equity. It can borrowunlimited amounts at an interest rate of rd = 9% as long as it finances at its target capitalstructure, which calls for 35% debt and 65% common equity. Its last dividend (D0) was$2.20, its expected constant growth rate is 6%, and its common stock sells for $26. EEC’s taxrate is 40%. Two projects are available: Project A has a rate of return of 12% and Project B’sreturn is 11%. These two projects are equally risky and about as risky as the firm’s existingassets.a. What is its cost of common equity?b. What is the WACC?c. Which projects should Empire accept?
Pixieedust Telecommunications, Inc has the following target capital structure, which it considers to be optimal: debt = 25%, preferred stock = 15%, and common stock = 60%. PTI's tax rate is 40%, and investors expect earnings and dividends to grow at a constant rate of 6% in the future. PTI paid dividend of $3.70 per share last year (D₁), and its stock currently sells at a price of $60 per share. Ten-year Treasury bonds yield 6%, the market risk premium is 5%, and beta is 1.3. The following terms would apply to new security offerings. Additional information: Preferred - New preferred could be sold to the public at a price of $100 per share, with a dividend of $9. Flotation costs of $5 per share would be incurred. Debt-Debt could be sold at an interest rate of 9%. Common-New common equity will be raised only by retaining earnings. c. Cost of common stock d. WACC
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) Frenzi Communications Inc. (FCI) has the following capital structure, which it considers to be optimal: debt = 25%, preferred stock = 15%, and common stock = 60%. FCI’s tax rate is 40%, and investors expect earnings and dividends to grow at a constant rate of 6% in the future. FCI paid a dividend of Gh₵3.70 per share last year (D0), and its stock currently sells at a price of Gh₵60 per share. Ten-year Treasury bonds yield6%, the market risk premium is 5%, and FCI’s beta is 1.3. The following terms would apply to new security offerings. Preferred: New preferred could be sold to the public at a price of Gh₵100 per share, with a dividend of Gh₵9. Flotation costs of Gh₵5 per share would be incurred. Debt: Debt could be sold at an interest rate of 9%. Common: New common equity will be raised only by retaining earnings. i. Find the component costs of debt, preferred stock, and common stock. ii. What is the WACC? b) Capital budgeting is a complex process which may be divided into phases.…
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