Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Short Problems: Show your work clearly for full or partial
credit. Please upload the short problems excel file on
CAMINO in the folder, under the assignments tab, titled
"Exam 2 File Upload".
ABC corporation has $600 mil worth bonds outstanding
at face value with a 8.5% coupon rate paid semiannually.
These bonds were issued six years ago with 25 years to
maturity. The market price of these bonds is $952.3, and
they were issued with the face value of $1000. The
corporate tax rate is 20%. The company also has 6 mil
shares of common stock outstanding that currently sell
for $30 per share. The stock has beta of 1.2. The risk-free
rate is 4%, and the expected return on the market is 10%.
The firm is expected to pay $2.25 per share dividend next
year. It also forecasts the constant annual dividend
growth rate of 4.5% till perpetuity.
What is the firm's weighted average cost of capital
(WACC), if the firm calculates the cost of equity by taking
average between the results from the DGM and SML
models?
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Transcribed Image Text:Short Problems: Show your work clearly for full or partial credit. Please upload the short problems excel file on CAMINO in the folder, under the assignments tab, titled "Exam 2 File Upload". ABC corporation has $600 mil worth bonds outstanding at face value with a 8.5% coupon rate paid semiannually. These bonds were issued six years ago with 25 years to maturity. The market price of these bonds is $952.3, and they were issued with the face value of $1000. The corporate tax rate is 20%. The company also has 6 mil shares of common stock outstanding that currently sell for $30 per share. The stock has beta of 1.2. The risk-free rate is 4%, and the expected return on the market is 10%. The firm is expected to pay $2.25 per share dividend next year. It also forecasts the constant annual dividend growth rate of 4.5% till perpetuity. What is the firm's weighted average cost of capital (WACC), if the firm calculates the cost of equity by taking average between the results from the DGM and SML models? Upload Choose a File
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