CONNECT WITH LEARNSMART FOR BODIE: ESSE
11th Edition
ISBN: 2819440196246
Author: Bodie
Publisher: MCG
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Chapter 8, Problem 19PS
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Dani Corporation has 3.4 million shares of common stock outstanding. The current share price is $84.50, and the book value per
share is $8.75. The company also has two bond issues outstanding. The first bond issue has a face value of $71 million, a coupon
rate of 5.1 percent, and sells for 95.5 percent of par. The second issue has a face value of $43 million, a coupon rate of 5.7 percent
and sells for 104.5 percent of par. The first issue matures in 21 years, the second in 9 years. The most recent dividend was $3.98 a
the dividend growth rate is 4.1 percent. Assume that the overall cost of debt is the weighted average of that implied by the two
outstanding debt issues. Both bonds make semiannual payments. The tax rate is 21 percent.
What is the company's cost of equity?
Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
Cost of equity
%
What is the company's aftertax cost of debt?
Note: Do not round intermediate…
Gateway Tours is choosing between two bus models. One is more expensive to purchase and maintain but lasts much longer than the other. Gateway's discount rate is 10.9%. The company plans to continue with
one of the two models for the foreseeable future. Based on the costs of each shown here, which should it choose? (Note: dollar amounts are in thousands.)
Based on the costs of each model, which should it choose? (Select the best choice below.)
OA. Gateway Tours should choose Short and Sweet because the NPV of its costs is smaller.
OB. Gateway Tours should choose Old Reliable because it lasts longer.
C. Gateway Tours should choose Short and Sweet because the equivalent annual annuity of its costs is smaller.
OD. Gateway Tours should choose Old Reliable because the equivalent annual annuity of its costs is smaller.
Data table
(Click on the following icon in order to copy its contents into a spreadsheet.)
Model
Year 0
Year 1
Year 2
Year 3
Old Reliable
- $201
- $3.9
- $3.9
-$3.9
Year 4
-…
Chapter 8 Solutions
CONNECT WITH LEARNSMART FOR BODIE: ESSE
Ch. 8 - Prob. 1PSCh. 8 - Et
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Ch. 8 - Prob. 20PSCh. 8 - Prob. 21PSCh. 8 - Prob. 22PSCh. 8 - Prob. 23PSCh. 8 - Prob. 24CCh. 8 - Prob. 25CCh. 8 - Prob. 1CPCh. 8 - Prob. 2CPCh. 8 - Prob. 3CPCh. 8 - Prob. 4CPCh. 8 - Prob. 5CPCh. 8 - Prob. 6CPCh. 8 - Prob. 7CPCh. 8 - Prob. 8CPCh. 8 - Prob. 9CPCh. 8 - Prob. 10CPCh. 8 - Prob. 11CP
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