1. Your company issue the common shares of Cnd$50/share, 2 million shares outstanding; Your company Beta is 2 and market risk free rate is 5% at this moment, and expected market return is 15%; 2. Your company issue the bond at the current quote of 900; Your coupon payment rate is 8%, while payment term is semi annual; the bond tenor is 20years; Your bond face value is 100million; 3. Your company also issue some preferred stocks at cnd$70/share, with dividend payment of cnd7/share, total amount of issue is 100million; Your corporate tax rate is 30%;

1. Your company issue the common shares of Cnd$50/share, 2 million shares outstanding; Your company Beta is 2 and market risk free rate is 5% at this moment, and expected market return is 15%; 2. Your company issue the bond at the current quote of 900; Your coupon payment rate is 8%, while payment term is semi annual; the bond tenor is 20years; Your bond face value is 100million; 3. Your company also issue some preferred stocks at cnd$70/share, with dividend payment of cnd7/share, total amount of issue is 100million; Your corporate tax rate is 30%;

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 17P

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As the CFO of your company, you want to determine the rate your company must require for capital investment projects. You have gathered the following information about the various funding sources and market conditions. Debt: 23,000 bonds. 7.2 annual% coupon, with semiannual payments. $1,000 face value. 19 years to maturity. Priced at $1,060 per bond. Preferred stock: 25,000 shares preferred stock. Priced at $95 per share. $5.00 dividend per share. Common Stock: 560,000 shares. Priced at $74 per share. Beta is 1.17. Market: 7% market risk premium. 5.1% risk-free rate. Company’s tax rate is 23%. What is the company's Weighted Average Cost of Capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 12.34.
Q2. Suppose you are the chief financial officer of Toktik Co. and you are trying to determine the optimal capital structure for the company using the cost of capital approach. On the day of this exam, you have collected the following company and market data: The beta of the company is 2.6; • 10-year Treasury bond rate is 1.6% and the current market equity risk premium is 6.9%; • The company's current bond rating is BB by Standard & Poor's; • The firm currently has 5.2 billion shares outstanding with share price at $120 and the firm's market value of debt is $264 billion • The company's marginal tax rate is 35%. Also you are given the following table concerning the latest information on bond rating and the corresponding default spread: Default spread Rating AAA 0.69% AA 0.85% A+ 1.07% A 1.18% А- 1.33% BBB 1.71% BB+ 2.31% BB 2.77% B+ 4.05% 4.86% В- 5.94% ССС 9.46% CC 9.97% 13.09% D 17.44% Required: a) Briefly explain, by referencing relevant capital structure theories, the mechanisms…
Assume that you were recently hired as assistant to Jerry Lehman, financial VP of Coleman Technologies. Your first task is to estimate Coleman’s cost of capital. Lehman has provided you with the following data, which he believes is relevant to your task: Questions: The firm’s marginal tax rate is 40%. The current price of Coleman’s 12 % coupon, semiannual payment, noncallable bonds with 15 years remaining to maturity is $1,153.72. Coleman does not use short-term interest-bearing debt on a permanent basis. New bonds would be privately placed with no flotation cost. The current price of the firm’s 10%, $100 par value, quarterly dividend, perpetual preferred stock is $113.10. Coleman would incur flotation costs of $2 per share on a new issue. 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 Treasury bonds is 7%, and the…
Global Internet 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%. If Global raises capital using 45% debt, 5% preferred stock, and 50% common stock what is their cost of capital?
Global Internet 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 Global raises capital using 45% debt, 5% preferred stock, and 50% common stock what is their cost of capital? b) If Global raises capital using 30% debt, 5% preferred stock, and 65% common stock what is their cost of capital? c) Evaluate the two finance options and identify which one they should choose? Assess the advantages and disadvantages of your choice?
Global Internet 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 Global raises capital using 45% debt, 5% preferred stock, and 50% common stock what is their cost of capital? [Note: you are supposed to show every step of your calculation and interpret the result.] b) If Global raises capital using 30% debt, 5% preferred stock, and 65% common stock what is their cost of capital? [Note: you are supposed to show every step of your calculation and interpret the result. c) Evaluate the two finance options and identify…
Global Internet 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%. If Global raises capital using 45% debt, 5% preferred stock, and 50% common stock what is their cost of capital? [Note: you are supposed to show every step of your calculation and interpret the result.] If Global raises capital using 30% debt, 5% preferred stock, and 65% common stock what is their cost of capital? [Note: you are supposed to show every step of your calculation and interpret the result.] Evaluate the two finance options and identify which…
Global Internet 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%. If Global raises capital using 30% debt, 5% preferred stock, and 65% common stock what is their cost of capital? [Note: you are supposed to show every step of your calculation and interpret the result.] If Global raises capital using 45% debt, 5% preferred stock, and 50% common stock what is their cost of capital? [Note: you are supposed to show every step of your calculation and interpret the result.]
Global Internet 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%. f Global raises capital using 30% debt, 5% preferred stock, and 65% common stock what is their cost of capital? [Note: you are supposed to show every step of your calculation and interpret the result.]
you have appointed as a finacial consaltant by the directors of mario limited .they require you to calculate the cost of capital of the company. the following information is available on the capital structure of the company. 5 500 000 ordinary shares, with a market price of R3 per share. the beta of the company is 1.6, a risk free rate of 8.2% and the return on the market is 18%. there are one million 12%, R1 preference shares with a market value of R2per share. in addition, R2 200 000 8%, Debentures due in 8 years and the current yield-to-maturity is 11% and R5000 000 13% bank loan, due in December 2027. additinal information the vompany has a tax rate of 30%. the latest divided declared was 90 cents per share. a divided growth of 13% was maintained for the past 5 years. required. 1.1 calculate the weited average cost of capital (WACC). Use the capital asset pricing model. 1.2 calculate the cost of equity, using the gordon growth model.
(Individual or component costs of capital) Your firm is considering a new investment proposal and would like to calculate its weighted average cost of capital. To help in this, compute the cost of capital for the firm for the following: a. A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 12.1 percent that is paid semiannually. The bond is currently selling for a price of $1,122 and will mature in 10 years. The firm's tax rate is 34 percent. b. If the firm's bonds are not frequently traded, how would you go about determining a cost of debt for this company? c. A new common stock issue that paid a $1.78 dividend last year. The par value of the stock is $16, and the firm's dividends per share have grown at a rate of 7.3 percent per year. This growth rate d. A preferred stock paying a 9.6 percent dividend on a $123 par value. The preferred shares are currently selling for $149.05. e. A bond selling to yield 12.9 percent for the purchaser of the…
(Individual or component costs of capital) Your firm is considering a new investment proposal and would like to calculate its weighted average cost of capital. To help in this, compute the cost of capital for the firm for the following: a. A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 12.1 percent that is paid semiannually. The bond is currently selling for a price of $1,122 and will mature in 10 years. The firm's tax rate is 34 percent. b. If the firm's bonds are not frequently traded, how would you go about determining a cost of debt for this company? c. A new common stock issue that paid a $1.78 dividend last year. The par value of the stock is $16, and the firm's dividends per share have grown at a rate of 7.3 percent per year. This growth rate is expected to continue into the foreseeable future. The price of this stock is now $27.23. d. A preferred stock paying a 9.6 percent dividend on a $123 par value. The preferred shares are…