of winter. The firm pays a dividend to its shareholders every four months, with each dividend being 1.31.3% larger in size than the previous one. The firm has a cost of equity capital of 25.625.6% per annum (compound

Assume that your company is an all-equity firm with 250,000 shares outstanding. The company's EBIT is $2,500,000, and EBIT is expected to remain constant over time. The company pays out all of its earnings each year, so its earnings per share are equal to its dividends per share and this is currently $6.00 per share. The company's tax rate is 40 percent, its current cost of stock, Ks, is 8 percent, and its current stock price is $75 per share. Now assume that the company is considering issuing $3.75 million worth of bonds (at par) and using the proceeds for a stock repurchase. If issued, the bonds would have an estimated yield to maturity of 5 percent or interest of $187,500. The risk-free rate in the economy is 4 percent, and the market risk premium is 5 percent. The company's beta is currently 0.8, but its investment bankers estimate that the company's beta would rise to 0.9 if it proceeds with the recapitalization. Assume that the shares are repurchased at the equilibrium price that…

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Mercury Satellite Corporation earned $20 million for the fiscal year ending yesterday. The firm's policy is to pay out 30 percent of its earnings as dividends. The remaining 70 percent of earnings is retained by the company for use in projects. The company has 2 million shares of common stock outstanding. The current stock price is $90. The historical return on equity (ROE) of 15 percent is expected to continue in the future. What is the required rate of return on the stock? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

b. ABC Inc. finances its operations with 40 percent debt and 60 percent equity. Its net income is $30 million and it has a dividend payout ratio of 30%. Its capital budget is B = $100 million this year. The annual yield on the company's debt is 7% and the company's tax rate is T = 30%. The company's common stock trades at Po = $100 per share, and its current dividend of Do = $4 per share is expected to grow at a constant rate of g = 5% a year. The floatation cost of external equity, if issued, is F = 1.5% of the dollar amount issued. What is the company's weighted average cost of capital?

Mokoko Ltd. is considering a number projects and thus need to estimate its cost of capital in order to estimate their NPV.  The company’s current dividend is $2.25 per share, which has grown steadily at 6% each year for over a decade and is expected to continue doing so.  Its stock currently trades at $26 and there are 2 million shares outstanding.  The company’s 100,000 preferred shares trade at $22 and pay annual dividends of $3.  Cash and marketable securities on the company’s balance sheet total $30.5 million and the firm pays a tax rate of 30%.  Their existing long-term debt (face value of $100 million, semi-annual payments) pays a 9.5% coupon and has 12 years remaining before maturity.  Due to current conditions, the required rate of return (yield to maturity) on this debt is 11% and any new debt issuance would be required to offer the same yield to investors (there is no term premium for 1 year vs 12 year debt). What is Mokoko Ltd's Debt/Equity ratio? Assuming the firm wants to…

Pro Build Inc. has had a net income of $16 million in its most recent year. Net income is expected to grow by 3% per year. The firm always pays out 20% of net income as dividends and has 3 million shares of common stock outstanding. The required return is 14%.   What is the value of the stock?

Weasley plc has just paid a dividend of 15p per share. Next year’s dividend is expected to be 12% higher and thereafter dividends are expected to grow at a rate of 4% per annum. The cost of capital for Weasley is 8%. the company is faced with an investment opportunity which will require dividends to be reduced to 4p per annum for the next five years. Dividends in six years will be 18p and they will then grow at 6% per annum. However, the market believes that the new investment increases the riskiness of Weasley plc with the result that the cost of equity capital rises to 9%. Using the dividend share valuation model, what will be the share price (to the nearest £0.01) without the investment opportunity (i) now and in (ii) four years’ time? a.(i) £4.20 and (ii) £4.39 b.(i) £4.20 and (ii) £4.91 c.(i) £3.75 and (ii) £4.39 d.(i) £3.75 and (ii) £4.91 e.none