Billick Brothers is estimating its WACC. The company has collected the following information: Its capital structure consists of 28 percent debt and 72 percent common equity. The company has 13-year bonds outstanding with a 8.5 percent annual coupon that are trading at par. The company's tax rate is 32 percent. The risk-free rate is 4.3 percent. The market risk premium is 3.5 percent. The stock's beta is 1.1. What is the company's WACC? Answer Choice Below. 6.39% 6.69% 7.19% 7.49% 6.89%

Billick Brothers is estimating its WACC. The company has collected the following information: Its capital structure consists of 28 percent debt and 72 percent common equity. The company has 13-year bonds outstanding with a 8.5 percent annual coupon that are trading at par. The company's tax rate is 32 percent. The risk-free rate is 4.3 percent. The market risk premium is 3.5 percent. The stock's beta is 1.1. What is the company's WACC? Answer Choice Below. 6.39% 6.69% 7.19% 7.49% 6.89%

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Billick Brothers is estimating its WACC. The company has collected the followinginformation: Its capital structure consists of 40 percent debt and 60 percent common equity. The company has 20-year bonds outstanding with a 9 percent annual coupon that aretrading at par. The company’s tax rate is 40 percent. The risk-free rate is 5.5 percent. The market risk premium is 5 percent. The stock’s beta is 1.4.Required:Calculate the company’s WACC?
National Products Inc. wants to calculate its weighted average cost of capital (WACC).The company’s CFO has collected the following information:• The company has a long-term bond outstanding, valued at $20 million. The bond is a semiannualcoupon bond with 6% coupon rate, and 5 years left to maturity. The current price is $959.45 for$1,000 par value.• The company’s preferred stock pays a fixed dividend of $2 per share, and the preferred stockprice is $20.• The company’s common stock price is $32 a share, and recently paid a dividend of $2 a share.• The dividend is expected to grow at a constant rate of 6% per year.• The company has the target capital structure of $50 million in equity, $10 million in preferredstock and $20 million in debt.• The company’s tax rate is 40%. What is the company weighted average cost of capital?
National Products Inc. wants to calculate its weighted average cost of capital (WACC).The company’s CFO has collected the following information:• The company has a long-term bond outstanding, valued at $20 million. The bond is a semiannualcoupon bond with 6% coupon rate, and 5 years left to maturity. The current price is $959.45 for$1,000 par value.• The company’s preferred stock pays a fixed dividend of $2 per share, and the preferred stockprice is $20.• The company’s common stock price is $32 a share, and recently paid a dividend of $2 a share.• The dividend is expected to grow at a constant rate of 6% per year.• The company has the target capital structure of $50 million in equity, $10 million in preferredstock and $20 million in debt.• The company’s tax rate is 40%.a. What is the company’s before-tax cost of debt?
National Products Inc. wants to calculate its weighted average cost of capital (WACC).The company’s CFO has collected the following information:• The company has a long-term bond outstanding, valued at $20 million. The bond is a semiannualcoupon bond with 6% coupon rate, and 5 years left to maturity. The current price is $959.45 for$1,000 par value.• The company’s preferred stock pays a fixed dividend of $2 per share, and the preferred stockprice is $20.• The company’s common stock price is $32 a share, and recently paid a dividend of $2 a share.• The dividend is expected to grow at a constant rate of 6% per year.• The company has the target capital structure of $50 million in equity, $10 million in preferredstock and $20 million in debt.• The company’s tax rate is 40%.a. What is the company’s before-tax cost of debt?Before-tax cost of debt = %b. What is the company’s cost of preferred stock?Cost of preferred stock = %c. What is the company’s cost of common stock?Cost of common stock =
5. DBC is estimating its WACC. The company has collected the following information: •Its capital structure consists of 40 percent debt and 60 percent common equity. •The company has 20-year bonds outstanding with a 9 percent annual coupon that are trading at par. •The company’s tax rate is 40 percent. •The risk-free rate is 5.5 percent. •The market risk premium is 5 percent. •The stock’s beta is 1.4. What is the company’s WACC?
Smathers Corp. stock has a beta of 1.23. The market risk premium is 7.00 percent and the risk-free rate is 2.86 percent annually. What is the company's cost of equity
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.
Reiterpallasch Inc. has provided you the following data: the company expects to pay a dividend of $0.65 at the end of the year, and the dividend is expected to grow at a constant rate of 6.00% per year, the current price of a share of stock is $16.00 per share, and the flotation cost for issuing new shares is 10.00%. The yield on the company's outstanding bonds is 7.75%, and the tax rate is 25%. The target capital structure consists of 40% debt, with the remainder consisting of common equity. Assuming the company MUST issue new stock to finance its capital budget, what is the company's WACC?
XYZ Corporation's beta is calculated 1.20. The corporation paid $1.25 dividend last year. The growth rate in XYZ's earnings and dividends is estimated 25.00% for the next 5 years, after which the growth rate will be 2.00%. The risk-free rate of return is 3.00%, and XYZ's management estimates that the market return is 8.50%. Calculate the current common stock price of the corporation.
Southern Home Cookin' just paid its annual dividend of $0.65 a share. The stock has a market price of $13 and a beta of 1.12. The return on the U.S. Treasury bill is 2.5 percent and the market risk premium is 6.8 percent. What is the cost of equity?
During the next 12 months, Crown, Inc. plans to pay dividends of $1.20 per share. Currently, its stock price is $30 per share. Growth is expected at 9 percent. Flotation costs are $2. Compute the cost of retained earnings. and if Crown, Inc. has a beta of 1.2. The market return equals 14 percent and the risk‑free rate of return equals 6 percent. What is the estimated cost of common stock equity?
A firm's stock has a market capitalization of 520 million and an equity beta of 1.05. Bonds issued by the firm have a yield rate of 8.1%. Bonds with a similar debt rating has a default rate of 3.1% and a loss rate of 55%. The total market value of the firm's bonds is 280 million. The risk free rate is 1.9% and the market risk premium is 7.5%. The volatility of the market portfolio is 23%. Suppose that the CAPM assumptions hold. Calculate the covariance between the return of the firm's assets and the return of the market portfolio. O 0.0472 0.0434 0.0548 0.0585 O 0.0510

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