The future earnings, dividends, and common stock price of Carpetto Technologies Inc. are expected to grow by 8% per year. Carpetto's common stock currently sells for $25.00 per share; its last dividend was $2.00, and it will pay a $2.16 dividend at the end of the current year. If the firm's bonds earn a return of 11%, based on the bond-yield-plus- risk-premium approach, what will be rs? Round your answer to two decimal places.
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- The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow 3% per year. Callahan's common stock currently sells for $22.75 per share; its last dividend was $2.00; and it will pay a $2.06 dividend at the end of the current year. If the firm's bonds earn a return of 9%, based on the bond-yield-plus-risk-premium approach, what will be rs? Use the midpoint of the risk premium range discussed in Section 10-5 in your calculations. Round your answer to two decimal places. % If you have equal confidence in the inputs used for the three approaches, what is your estimate of Callahan's cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places. %If the firm’s bonds earn a return of 12 percent, what will rs be based on the bondyield-plus-risk-premium approach, using the midpoint of the risk premium range?The earnings, dividends, and common stock price of Carpetto Technologies Inc. are expected to grow at 7 percent per year in the future. Carpetto’s common stock sells for $23 per share, its last dividend was $2.00, and it will pay a dividend of $2.14 at the end of the current year. a)Assuming you have equal confidence in the inputs used for the three approaches, what is your estimate of Carpetto’s cost of common equity? b)If the firm’s bonds earn a return of 12 percent, what will rs be based on the bondyield-plus-risk-premium approach, using the midpoint of the risk premium range?Jasper's, Inc. is expected to pay an annual dividend of $1.21 per share next year. This dividend is expected to increase by 3.5 percent annually. Jasper's also pays a 6 percent, annual coupon on its outstanding bonds. These bonds mature in 12.5 years and have a face value of $1,000. The firm's stock has a beta of 1.38 and a market price of $42.60 a share. The bonds are priced at $1,064 each. The market risk premium is 9.5 percent, the risk-free rate is 3.7 percent, and the tax rate is 32 percent. What is the firm's weighted average cost of capital if its debt-equity ratio is 0.36? A) 9.46 percentB) 9.58 percentC) 9.64 percentD) 9.69 percent
- what is the required date of return?A firm is planning on issuing new bonds and equity. The semiannual bonds will have a coupon rate 9% with a maturity of 15 years. The preferred stock pays a dividend of $6. The common stock's current dividend is $2.50 with a growth rate of 7%. The flotation costs on bonds is 5%, 7% on preferred stocks and 10% on common stock. The tax rate is 35%. The current price of the bonds is $975 while the price of the common stock is $53.50 and $55 for the preferred stock. If the growth rate falls to 6%, what is change in the cost of external equity? external equity falls by 8.5% external equity falls by 7% external equity falls by 6.5% external equity falls by 6%The equity beta of XYZ SE shares is estimated to be 0.8. The expectedequity market return is 8% per annum. The current risk free rate is 5% perannum. The company’s raises debt through issuing long term bonds.Currently XYZ has 3million £100 long term bonds outstanding with a 6.5%annual coupon. These bonds are currently trading at par (£100). Thecorporate tax rate is 24%. The market value of XYZ’s shares is currently£700m. Estimate XYZ’s Weighted Average Cost of Capital.
- A corporation’s 10-year bonds are currently yielding a return of 6.05 percent. The expected inflation premium is 1.00 percent annually and the real risk-free rate is expected to be 2.10 percent annually over the next ten years. The liquidity risk premium on the bonds is 0.25 percent. The maturity risk premium is 0.10 percent on 2-year securities and increases by 0.05 percent for each additional year to maturity. Calculate the default risk premium on the 10-year bonds. How would an increase in liquidity affect the nominal interest rate?A company's 5-year bonds are yielding 10% per year. Treasury bonds with the same maturity are yielding 3.9% per year, and the real risk-free rate (r*) is 2.15%. The average inflation premium is 1.35%, and the maturity risk premium is estimated to be 0.1 × (t - 1)%, where t = number of years to maturity. If the liquidity premium is 0.9%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places. %Gateway Services' CFO is interested in estimating the company's WACC. Eight years ago, the company issued a 30-year bond with a 7.5 percent annual coupon rate, payable semi-annually. The bonds have a face value of $1,000 per unit and currently sell for $1,105. The company’s common stock has a beta of 1.8, the risk-free rate is 2.5 percent, and the expected return on the market is 8.0 percent. Gateway’s tax rate is 25 percent and its target capital structure consists of 70 percent common equity and 30 percent debt. What is the company’s WACC?
- Chen Chocolate Company's EPS in 2020 was $1.80, and in 2015 it was $1.25. The company's payout ratio is 60%, and the stock is currently valued at $37.75. Flota- tion costs for new equity will be 12%. Net income in 2021 is expected to be $20 million. The company's investment banker estimates that it could sell 15-year semiannual bonds with a coupon rate of 6.5%. The face value would be $1,000 and the flota- tion costs for a bond issue would be 1%. The market-value weights of the firm's debt and equity are 30% and 70%, respectively. The firm faces a 25% tax rate. a. Based on the five-year track record, what is Chen's EPS growth rate? What will the dividend be in 2021? b. Calculate the firm's cost of retained earnings and the cost of new common equity. c. Calculate the break-point associated with retained earnings. d. What is the firm's after-tax cost of new debt? What is the firm's WACC with retained carnings? With new common equity? f. Create a scatter chart that shows the firm's…A firm has a debt-to-equity ratio of 1:1. The firm’s debt beta is 0.3. Five-year government bonds yield 5% pa with a coupon rate of 4% pa. The market's expected dividend return is 4% pa and its expected capital return is 6% pa. The firm stock’s next dividend is expected to be $2, paid one year from now. Dividends are expected to be paid annually and grow by 1% pa forever. The current stock price $10. The corporate tax rate is 30%. Assume a classical tax system. Which statement is NOT correct? a. The expected return on equity is 21% pa. b. The beta of the firm’s assets is 1.75. c. The expected return on debt is 6.5% pa. d. The firm’s after-tax WACC is 13.75% pa. e. The beta of the firm's equity is 3.2.Coleman’s common stock is currently selling at $50 per share. Its last dividend (D0) was $4.19, and dividends are expected to grow at a constant rate of 5% in the foreseeable future. Coleman’s beta is 1.2, the yield on T-bonds is 7%, and the market risk premium is estimated to be 6%. For the own-bondyield-plus-risk-premium approach, the firm uses a 4% judgmental risk premium. Assume for now that Coleman Corp. does not plan to issue new shares of common stock. Find Coleman’s estimate cost of equity using: (a) the CAPM approach; (b) the dividend growth approach; and (c) the own-bond-yield-plus-judgmental-risk-premium method. What is your final estimate for the cost of equity, rs?