Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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GenBio Labs's
a. 9.0%
b. 9.4%
c. 9.8%
d. 10.2%
e. 10.6%
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- Adamson Corporation is considering four average-risk projects with the following costs and rates of return: Project Cost Expected Rate of Return 1 $2,000 16.00% 2 3 4 3,000 5,000 2,000 15.00 13.75 12.50 The company estimates that it can issue debt at a rate of rd = 9%, and its tax rate is 25%. It can issue preferred stock that pays a constant dividend of $4.00 per year at $56.00 per share. Also, its common stock currently sells for $49.00 per share; the next expected dividend, D₁, is $5.75; and the dividend is expected to grow at a constant rate of 5% per year. The target capital structure consists of 75% common stock, 15% debt, and 10% preferred stock. a. What is the cost of each of the capital components? Do not round intermediate calculations. Round your answers to two decimal places. % Cost of debt: Cost of preferred stock: Cost of retained earnings: % % b. What is Adamson's WACC? Do not round intermediate calculations. Round your answer to two decimal places. % c. Only projects…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_forwardof capital. The weighted average cost is to be measured by using the following weights: 35% long-term debt, 20% preferred stock, and 45% common stock equity (retained K earnings, new common stock, or both). The firm's tax rate is 28%. Debt The firm can sell for $1000 a 11-year, $1,000-par-value bond paying annual interest at a 9.00 % coupon rate. A flotation cost of 3% of the par value is required. Preferred stock 7.50% (annual dividend) preferred stock having a par value of $100 can be sold for $98. An additional fee of $5 per share must be paid to the underwriters. Common stock The firm's common stock is currently selling for $80 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.70 ten years ago to the $4.00 dividend payment, Do, that the company just recently made. If the company wants to issue new new common stock, it will sell them $1.50 below the current market price to attract investors, and the company will pay $2.50 per share…arrow_forward
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