Bohannon corporations common stock has a beta of 110 if

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1. Calculating Cost of Equity. Bohannon Corporation's common stock has a beta of 1.10. If the risk-free rate is 4.5 percent and the expected return on the market is 12 percent, what is the company's cost of equity capital?

2. Estimating the DCF Growth Rate. Suppose Matta Ltd. just issued a dividend of $2.46 per share on its common stock. The company paid dividends of $1.96, $2.03, $2.20, and $2.30 per share in the last four years. If the stock currently sells for $65, what is your best estimate of the company's cost of equity capital using arithmetic and geometric growth rates?

3. WACC. Blue Bull, Inc. has a target debt-equity ratio of .70. Its WACC is 8.4 percent, and the tax rate is 35 percent.

a. If the company cost of equity is 11 percent, what is the pretax cost of debt?

b. If the after tax cost of debt is 5.2 percent, what is the cost of equity?

4. Calculating Flotation Costs. The IBBS Co. needs to raise $65 million to finance its expansion into new markets. The company will sell new shares of equity via a general cash offering to raise the needed funds. If the offer price is $50 per share and the company's underwriters charge an 8 percent spread, how many shares need to be sold?

5. Calculating Flotation Costs. The Bostitch Co. has just gone public. Under a firm commitment agreement, Bostitch received $32 for each of the 4.1 million shares sold. The initial offering price was $34.40 per share, and the stock rose to $41 per share in the first few minutes of trading. Bostitch paid $905,000 in legal and other direct costs and $250,000 in indirect costs. What was the flotation cost as a percentage of funds raised?

Reference no: EM13483829

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