Use these givens to solve the following NINE questions. ASM Corporation is considering a project that requires a $600,000 cash outlay and is expected to produce cash flows of $100,000 per year for the next four years. ASM's tax rate is 35%, and the before-tax cost of debt is 6.5%. The current share price for ASM's stock is $36 per share, and the expected dividend next year is $2 per share. ASM's expected growth rate is 5%. Assume that ASM finances the project with 40% debt and 60% equity capital, and that flotation costs for equity are 5%. The appropriate discount rate for the project is the WACC. The number of outstanding shares for ASM is 1,000,000 shares. 12. The cost of equity using the correct treatment for flotation cost is: A. 6.5% B. 10.847% 10.55% D. 7.24% E. None of the above 13. The cost of equity using the incorrect treatment for flotation cost is: A. 6.5% 10.847% C. 10.55% D. 7.24% E. None of the above 14. The WACC using the correct treatment for flotation cost is: A. 7.418% By 10.82% C. 10.55% D. 7.24% E. None of the above 15. The WACC using the incorrect treatment for flotation cost is: A. 7418% B. 10.82% C. 10.55% D. 7.24% E. None of the above Page 3 of 5 D(1-9) P 2(1-50 34
Use these givens to solve the following NINE questions. ASM Corporation is considering a project that requires a $600,000 cash outlay and is expected to produce cash flows of $100,000 per year for the next four years. ASM's tax rate is 35%, and the before-tax cost of debt is 6.5%. The current share price for ASM's stock is $36 per share, and the expected dividend next year is $2 per share. ASM's expected growth rate is 5%. Assume that ASM finances the project with 40% debt and 60% equity capital, and that flotation costs for equity are 5%. The appropriate discount rate for the project is the WACC. The number of outstanding shares for ASM is 1,000,000 shares. 12. The cost of equity using the correct treatment for flotation cost is: A. 6.5% B. 10.847% 10.55% D. 7.24% E. None of the above 13. The cost of equity using the incorrect treatment for flotation cost is: A. 6.5% 10.847% C. 10.55% D. 7.24% E. None of the above 14. The WACC using the correct treatment for flotation cost is: A. 7.418% By 10.82% C. 10.55% D. 7.24% E. None of the above 15. The WACC using the incorrect treatment for flotation cost is: A. 7418% B. 10.82% C. 10.55% D. 7.24% E. None of the above Page 3 of 5 D(1-9) P 2(1-50 34
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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Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
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Transcribed Image Text:Use these givens to solve the following NINE questions:
ASM Corporation is considering a project that requires a $600,000 cash outlay and is expected to
produce cash flows of $100,000 per year for the next four years. ASM's tax rate is 35%, and the
before-tax cost of debt is 6.5%. The current share price for ASM's stock is $36 per share, and the
expected dividend next year is $2 per share. ASM's expected growth rate is 5%.
Assume that ASM finances the project with 40% debt and 60% equity capital, and that flotation
costs for equity are 5%. The appropriate discount rate for the project is the WACC. The number
of outstanding shares for ASM is 1,000,000 shares.
12. The cost of equity using the correct treatment for flotation cost is:
A. 6.5%
B. 10.847%
10.55%
D. 7.24%
E. None of the above
13. The cost of equity using the incorrect treatment for flotation cost is:
A. 6.5%
10.847%
C. 10.55%
D. 7.24%
E. None of the above
14. The WACC using the correct treatment for flotation cost is:
A. 7.418%
By 10.82%
C. 10.55%
D. 7.24%
E. None of the above
15. The WACC using the incorrect treatment for flotation cost is:
A. 7418%
B. 10.82%
C. 10.55%
D. 7.24%
E. None of the above
Page 3 of 5
D(1-9)
2(1-56)
36
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