Fundamentals of Financial Management, Concise Edition (MindTap Course List)
9th Edition
ISBN: 9781305635937
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
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Chapter 10, Problem 13P
Summary Introduction
To determine: The
Introduction:
Cost of Equity:
It is the cost of the company while raising finance by issuing equity. It is the earnings from the investment to the firm’s equity investors. It is the return to the
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Banyan Co.'s common stock currently sells for $43.50 per share. The growth rate is a constant 6%, and the company has an expected dividend yield of 6%. The expected long-run dividend payout
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Cost of common equity with flotation Ballack Co.’s common stock currently sells for $46.75 per share. The growth rate is a constant 12 percent, and the company has an expected dividend yield of 5 percent. The expected long-run dividend payout ratio is 25 percent, and the expected return on equity (ROE) is 16 percent. New stock can be sold to the public at the current price, but a flotation cost of 5 percent would be incurred. What would the cost of new equity be?
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Banyan Co.’s common stock currently sells for $56.75 per share. The growth rate is a constant 7%, and the company has an expected dividend yield of 2%. The expected long-run dividend payout ratio is 30%, and the expected return on equity (ROE) is 10.0%. New stock can be sold to the public at the current price, but a flotation cost of 10% would be incurred. What would be the cost of new equity? Do not round intermediate calculations. Round your answer to two decimal places.
Chapter 10 Solutions
Fundamentals of Financial Management, Concise Edition (MindTap Course List)
Ch. 10 - How would each of the following scenarios affect a...Ch. 10 - Assume that the risk-free rate increases, but the...Ch. 10 - How should the capital structure weights used to...Ch. 10 - Suppose a firm estimates its WACC to be 10%....Ch. 10 - The WACC is a weighted average of the costs of...Ch. 10 - AFTER-TAX COST OF DEBT The Holmes Companys...Ch. 10 - COST OF PREFERRED STOCK Torch Industries can issue...Ch. 10 - COST OF COMMON EQUITY Pearson Motors has a target...Ch. 10 - COST OF EQUITY WITH AND WITHOUT FLOTATION Jarett ...Ch. 10 - PROJECT SELECTION Midwest Water Works estimates...
Ch. 10 - COST OF COMMON EQUITY The future earnings,...Ch. 10 - COST OF COMMON EQUITY WITH AND WITHOUT FLOTATION...Ch. 10 - COST OF COMMON EQUITY AND WACC Palencia Paints...Ch. 10 - WACC The Paulson Companys year-end balance sheet...Ch. 10 - WACC Olsen Outfitters Inc. believes that its...Ch. 10 - WACC AND PERCENTAGE OF DEBT FINANCING Hook...Ch. 10 - WACC Empire Electric Company (EEC) uses only debt...Ch. 10 - Prob. 13PCh. 10 - COST OF PREFERRED STOCK INCLUDING FLOTATION Travis...Ch. 10 - WACC AND COST OF COMMON EQUITY Kahn Inc. has a...Ch. 10 - COST OF COMMON EQUITY The Bouchard Companys EPS...Ch. 10 - CALCULATION OF g AND EPS Sidman Productss common...Ch. 10 - WACC AND OPTIMAL CAPITAL BUDGET Adamson...Ch. 10 - ADJUSTING COST OF CAPITAL FOR RISK Ziege Systems...Ch. 10 - WACC The following table gives Foust Company's...Ch. 10 - CALCULATING THE WACC Here is the condensed 2016...Ch. 10 - COLEMAN TECHNOLOGIES INC. COST OF CAPITAL Coleman...Ch. 10 - As a first step, we need to estimate what...Ch. 10 - Prob. 2DQCh. 10 - Next, we need to calculate MMMs cost of debt. We...
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- WACC Estimation On January 1, the total market value of the Tysseland Company was $60 million. During the year, the company plans to raise and invest $30 million in new projects. The firm’s present market value capital structure, shown here, is considered to be optimal. There is no short-term debt. New bonds will have an 8% coupon rate, and they will be sold at par. Common stock is currently selling at $30 a share. The stockholders’ required rate of return is estimated to be 12%, consisting of a dividend yield of 4% and an expected constant growth rate of 8%. (The next expected dividend is $1.20, so the dividend yield is $1.20/$30 = 4%.) The marginal tax rate is 40%. In order to maintain the present capital structure, how much of the new investment must be financed by common equity? Assuming there is sufficient cash flow for Tysseland to maintain its target capital structure without issuing additional shares of equity, what is its WACC? Suppose now that there is not enough internal cash flow and the firm must issue new shares of stock. Qualitatively speaking, what will happen to the WACC? No numbers are required to answer this question.arrow_forwardA company’s common stock currently sells for $56.00 per share. The growth rate is a constant 6%, and the company has an expected dividend yield of 7%. The expected long run dividend payout ratio is 20%, and the expected return on equity (ROE) is 7.5%. New stock can be sold to the public at the current price, but a flotation cost of 5% would be incurred. What would be the cost of new equity?arrow_forwardTrahern Baking Co. common stock sells for $32.50 per share. It expects to earn $3.50 per share during the current year, its expected dividend payout ratio is 65%, and its expected constant dividend growth rate is 6.0%. New stock can be sold to the public at the current price, but a flotation cost of 5% would be incurred. What would be the cost of equity from new common stock? 12.70% 13.37% 14.04% 14.74% 15.48%arrow_forward
- Banyan Co.’s common stock currently sells for $51.75 per share. The growth rate is a constant 4%, and the company has an expected dividend yield of 5%. The expected long-run dividend payout ratio is 50%, and the expected return on equity (ROE) is 8.0%. New stock can be sold to the public at the current price, but a flotation cost of 10% would be incurred. What would be the cost of new equity? Do not round intermediate calculations. Round your answer to two decimal places. %arrow_forwardBanyan Co.’s common stock currently sellsfor $46.75 per share. The growth rate is a constant 6%, and the company has an expecteddividend yield of 5%. The expected long-run dividend payout ratio is 20%, and theexpected return on equity (ROE) is 7.5%. New stock can be sold to the public at the currentprice, but a flotation cost of 5% would be incurred. What would be the cost of new equity?arrow_forwardWeaver Chocolate Co. expects to earn $4.00 per share during the current year, its expected dividend payout ratio is 70%, its expected constant dividend growth rate is 6.0%, and its common stock currently sells for $45.00 per share. New stock can be sold to the public at the current price, but a flotation cost of 5% would be incurred. What would be the cost of equity from new common stock? Do not round your intermediate calculations. O a. 11.93% O b. 15.36% O c. 12.55% O d. 12.22% O e. 12.94%arrow_forward
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