Strolling Corporation is constructing its Cost of Capital schedule. The firm is at itstarget 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 is3.0%, 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 agrowth rate of 5.1%. The firm's tax rate is 30%. The firm's book value balance sheetis 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%, whatis the weight of debt that should be used in computing the Weighted Average Costof Capital?To the nearest .1%, what is the pre-tax cost of debt?ATo the nearest .1%, what is the cost of retained earningsusing the Constant Growth Model?To the nearest .1%,Awhat is the cost of equity using the Capital Asset Pricing Model?AUsing your Constant Growth Model cost of equity, to the nearest .1%, whatis Strolling's Weighted Average Cost of Capital?

Summary of Answers Weight of Debt: 90.3%Pre-tax Cost of Debt: 4.7%Cost of Retained Earnings (Gordon…

Answered: Strolling Corporation is constructing…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Newman International has an optimal capital structure that consists of 35.00% debt, 15.00% preferred equity, and 50.00% common equity. Their new bond issue will have a coupon rate of 7.20%. Their preferred stock currently sells for $40 per share, and floating new shares would cost $2.00 per share. The preferred dividend is fixed at $2.60 annually. Newman’s common stock has a current market price of $33.00, and floating new common shares would cost Newman 6.00% of the share price. The most recent annual common dividend paid was $2.50, and the dividend is expected to grow at an annual rate of 5.00%. The firm’s marginal tax rate is 30.00%. Use these data to calculate Newman’s cost of issuing new common equity. Calculate the percentage to 2 decimal places
Saeed Construction’s CFO has the following information to estimate the company’s weighted average cost of capital:The company currently has 20-year, 8.5% semi-annual coupon bonds that currently sells for Rs.945.The company’s stock has a beta of 0.80.The market risk premium, RPm , equals 3%.The risk-free rate is 2.4% and market rate is 5.4%. The company’s growth (g) = 0%, stock price (P0) = Rs.50, current dividend (D0) = Rs.2 and additional/new equity flotation cost = 15%.The company has outstanding preferred stock that pays a Rs.2.00 annual dividend. The preferred stock sells for Rs.25 a share.The company’s tax rate is 40%. The company’s capital structure consists of 40% long-term debt, 40% common stock, and 20% preferred stock. Requirement: Calculate Component cost of debt, cost of equity, cost of preferred stock and weighted average cost of capital.
Preston Corp. is estimating its WACC. Its target capital structure is 20 percent debt, 20 percent preferred stock, and 60 percent common equity. Its bonds have a 12 percent coupon, paid semiannually, a current maturity of 20 years, and sells for $1,100. The firm could sell, at par, $100 preferred stock which pays a 7.57 percent annual dividend, but flotation costs of 5 percent would be incurred. Preston's beta is 1.2, the risk-free rate is 3 percent, and the market risk premium is 5 percent. The firm's marginal tax rate is 40 percent. What is Preston's WACC?
Tyres Limited has asked you to calculate the return on its ordinary shares to help in its calculation of its weighted average cost of capital (WACC). Tyres has 10,000,000 ordinary shares on issue that have a beta of 1.63. The last dividend was $9.56, and dividends have been growing at 2.7% per year. If the risk-free rate is 1.98% and the return on the market is 9.1%. What is the required return on one of Tyres’s ordinary shares?.
Riyad Bank has just paid its annual dividend of SAR1.50 per share. The dividend is expected to grow at a constant rate of 7% indefinitely. The beta of Riyad Bank stock is 1.2, the risk-free rate is 6%, and the market risk premium is 9%. - What Is the intrinsic value of the stock?
Please solve...
TRD company is looking to expand their operations. They are evaluating their cost of capital based on various financing options. Investment bankers informed them that they can issue new debt in the form of bonds at a cost of 8%, and issue new preferred stocks for the price of $25 per share paying $2.5 dividends per share. Their common stock is currently selling for $20 per share and will pay a dividend of $1.5 per share next year. They expect a growth rate in dividends of 5% per year, and their marginal tax rate is 35%. a) If TRD raises capital using 45%debt,5%preferred stock,and 50%common stock. What is their cost of capital? b)If TRD raises capital using 30%debt,5%preferred stock,and65%common stock.What is their cost of capital? c)Evaluate the two finance options and identify which one they should choose?
Belotti Company just paid a dividend of $1.67 per share to its stockholders. Market analysts believe Belotti Company will grow by 19 percent next year, 13.75 percent the following year, and 13 percent the year after. Then, it is projected that Belotti Company will grow at a constant rate of 4.75 percent per year indefinitely. The current rate of interest on risk-free asset is 2.51 percent and the rate of return on market portfolio is 11.25 percent. Belotti Company’s beta is estimated to be 1.09. What is your estimate of the current market price of Belotti Company’ stock?
Sunburn Sunscreen has a zero coupon bond issue outstanding with a face value of $30,000 that matures in one year. The current market value of the firm's assets is $31,800. The standard deviation of the return on the firm's assets is 36 percent per year and the annual risk-free rate is 4 percent per year, compounded continuously. Based on the Black-Scholes model, what is the market value of the firm's equity and debt? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Equity Debt

Recommended textbooks for you

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

Horngren's Cost Accounting: A Managerial Emphasis…

Accounting

ISBN:

9780134475585

Author:

Srikant M. Datar, Madhav V. Rajan

Publisher:

PEARSON

Intermediate Accounting

Accounting

ISBN:

9781259722660

Author:

J. David Spiceland, Mark W. Nelson, Wayne M Thomas

Publisher:

McGraw-Hill Education

Financial and Managerial Accounting

Accounting

ISBN:

9781259726705

Author:

John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS