Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Caspian Sea Drinks' is financed with 66.00% equity and the remainder in debt. They have 11.00-year, semi-annual pay, 5.72% coupon bonds which sell for 97.60% of par. Their stock currently has a market value of $25.43 and Mr. Bensen believes the market estimates that dividends will grow at 3.59% forever. Next year’s dividend is projected to be $2.49. Assuming a marginal tax rate of 35.00%, what is their WACC (weighted average cost of capital)?
Answer format: Percentage Round to: 2 decimal places (Example: 9.24%, % sign required. Will accept decimal format rounded to 4 decimal places (ex: 0.0924))
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- 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%arrow_forwardHandy Handbags (HH) recently paid a dividend of $2.00 (D0), which is expected to grow at 7%. HH’s stock price is $23, its beta is 1.6, the yield on its bonds is 12%, and the risk premium on the company’s own stock is 5%. The risk-free rate is 6% and the market risk premium is 4%. Flotation costs will be 10% if Handy issues new common stock. Using the bond yield plus risk premium method, compute the cost of retained earnings for HH: Question 14 options: 19% 16% 11% 17%arrow_forwardCompany A wants to calculate its WACC. It has just issued a 18-year, 8% coupon, non-callable bond at par value. A's current stock price is $21 and A just paid s $0.6 per share dividend. A's dividend payment is expected to grow at a constant rate of 7% a year. A wants to keep a debt-to-capital ratio of 60%. Tax rate is 25%. If A does not have preferred stock and floatation costs, what is its WACC (please report WACC as a decimal number with four decimal places, such as 0.0562)?arrow_forward
- This question is not incomplete. you need to calculate the cost of equity. I need Answer for the question number d and e. thanks Blooming Ltd. currently has the following capital structure:Debt: $2,500,000 par value of outstanding bond that pays annually 12% coupon rate with an annual before-tax yield to maturity of 10%. The bond issue has face value of $1,000 and will mature in 25 years.Ordinary shares: 65,000 outstanding ordinary shares. The firm plans to pay a $7.50 dividend per share in the next financial year. The firm is maintaining 3% annual growth rate in dividend, which is expected to continue indefinitely.Preferred shares: 40 000 outstanding preferred shares with face value of $100, paying fixed dividend rate of 14%.Company tax rate is 30% Required: Complete the following tasks:a) Calculate the current price of the corporate bond? b) Calculate the current price of the ordinary share if the average return of the shares in the same industry is 9%? c) Calculate the current value…arrow_forwardSh8arrow_forwarda) Suppose you borrow $2,000 at the annual interest rate of 9%, and you are required to pay it back in 12 equal monthly installments, the first one is due at the end of the first month. i) How much is the monthly installment? ii) Draw up an amortization schedule. b) BK Ltd has just paid a dividend per share of $1.20. Shares are valued only based on expected dividends. An annual sustainable growth of dividends of 4% is assumed. The appropriate discount rate (i) is 10% per year. The planning horizon is limited to 20 years. Compute the share value.arrow_forward
- You are given the following information for Huntington Power Company. Assume the company's tax rate is 25 percent. Debt: Common stock: Market: 30,000 4.9 percent coupon bonds outstanding, $2,000 par value, 25 years to maturity, selling for 104 percent of par; the bonds make semiannual payments. 470,000 shares outstanding, selling for $76 per share; the beta is 1.10. 6 percent market risk premium and 4.1 percent risk-free rate. What is the company's WACC?arrow_forwardHandy Handbags (HH) recently paid a dividend of $2.00 (D0), which is expected to grow at 7%. HH’s stock price is $23, its beta is 1.6, the yield on its bonds is 12%, and the risk premium on the company’s own stock is 5%. The risk-free rate is 6% and the market risk premium is 4%. Flotation costs will be 10% if Handy issues new common stock. Using the discounted cash flow method, compute the cost of retained earnings for HH: Question 13 options: 13.3% 18.4% 16.3% 15.7%arrow_forward4) Listen P Thorpe and Company is currently an all-equity firm. It has 3 million shares selling for $28 per share. Its beta is 0.85, and the current risk-free rate is 2.5%. The expected return on the market for the coming year is 13%. Thorpe will sell corporate bonds for $28,000,000 and retire common stock with the proceeds. The bonds are twenty-year semiannual bonds with a 10% coupon rate and $1,000 par value. The bonds are currently selling for $1,143.08 per bond. When the bonds sell, the company's beta will increase to 0.95. What was Thorpe and Company's WACC before the bond sale? Hint: The weight of equity before selling the bond is 100%.arrow_forward
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