Strolling Corporation is constructing its Cost of Capital schedule. The firm is at its target capital structure. Its 15 year bonds have a 4.5 % coupon rate and sell for $960. Bond coupons are semi-annual. Rolling's stock beta is 1.3, the risk-free rate is 3.0%, and the return on market portfolio is 7.0%. Rolling is a constant growth firm, and will pay a dividend of $1.50 next year. The stock sells for $35.00 and has a growth rate of 5.1%. The firm's tax rate is 30%. The firm's book value balance sheet is as follows: Assets $35,600, Long Term Debt $36,000, Equity ($1.00 par) $3,874, Retained Earnings -$4,274, Comprehensive Income 1,500. To the nearest .1%, what is the weight of debt that should be used in computing the Weighted Average Cost of Capital? To the nearest .1%, what is the pre-tax cost of debt? A To the nearest .1%, what is the cost of retained earnings using the Constant Growth Model? To the nearest .1%, A what is the cost of equity using the Capital Asset Pricing Model? A Using your Constant Growth Model cost of equity, to the nearest .1%, what is Strolling's Weighted Average Cost of Capital?
Strolling Corporation is constructing its Cost of Capital schedule. The firm is at its target capital structure. Its 15 year bonds have a 4.5 % coupon rate and sell for $960. Bond coupons are semi-annual. Rolling's stock beta is 1.3, the risk-free rate is 3.0%, and the return on market portfolio is 7.0%. Rolling is a constant growth firm, and will pay a dividend of $1.50 next year. The stock sells for $35.00 and has a growth rate of 5.1%. The firm's tax rate is 30%. The firm's book value balance sheet is as follows: Assets $35,600, Long Term Debt $36,000, Equity ($1.00 par) $3,874, Retained Earnings -$4,274, Comprehensive Income 1,500. To the nearest .1%, what is the weight of debt that should be used in computing the Weighted Average Cost of Capital? To the nearest .1%, what is the pre-tax cost of debt? A To the nearest .1%, what is the cost of retained earnings using the Constant Growth Model? To the nearest .1%, A what is the cost of equity using the Capital Asset Pricing Model? A Using your Constant Growth Model cost of equity, to the nearest .1%, what is Strolling's Weighted Average Cost of Capital?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Strolling Corporation is constructing its Cost of Capital schedule. The firm is at its
target capital structure. Its 15 year bonds have a 4.5 % coupon rate and sell for
$960. Bond coupons are semi-annual. Rolling's stock beta is 1.3, the risk-free rate is
3.0%, and the return on market portfolio is 7.0%. Rolling is a constant growth firm,
and will pay a dividend of $1.50 next year. The stock sells for $35.00 and has a
growth rate of 5.1%. The firm's tax rate is 30%. The firm's book value balance sheet
is as follows: Assets $35,600, Long Term Debt $36,000, Equity ($1.00 par) $3,874,
Retained Earnings -$4,274, Comprehensive Income 1,500. To the nearest .1%, what
is the weight of debt that should be used in computing the Weighted Average Cost
of Capital?
To the nearest .1%, what is the pre-tax cost of debt?
A
To the nearest .1%, what is the cost of retained earnings
using the Constant Growth Model?
To the nearest .1%,
A
what is the cost of equity using the Capital Asset Pricing Model?
A
Using your Constant Growth Model cost of equity, to the nearest .1%, what
is Strolling's Weighted Average Cost of Capital?
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