Reference no: EM13204811
1.The Heuser Company's currently outstanding bonds have a 10% coupon and a 13% yield to maturity. Heuser believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 35%, what is Heuser's after-tax cost of debt?
2.Tunney Industries can issue perpetual preferred stock at a price of $71.50 a share. The stock would pay a constant annual dividend of $7.00 a share. What is the company's cost of preferred stock, rp?
3.Percy Motors has a target capital structure of 35% debt and 65% common equity, with no preferred stock. The yield to maturity on the company's outstanding bonds is 11%, and its tax rate is 40%. Percy's CFO estimates that the company's WACC is 14.60%. What is Percy's cost of common equity?
4.Javits & Sons' common stock currently trades at $28.00 a share. It is expected to pay an annual dividend of $2.25 a share at the end of the year (D1 = $2.25), and the constant growth rate is 4% a year.
What is the company's cost of common equity if all of its equity comes from retained earnings? Round your answer to two decimal places.
%
If the company were to issue new stock, it would incur a 13% flotation cost. What would the cost of equity from new stock be? Round your answer to two decimal places.
5.Patton Paints Corporation has a target capital structure of 30% debt and 70% common equity, with no preferred stock. Its before-tax cost of debt is 11% and its marginal tax rate is 40%. The current stock price is P0 = $33.00. The last dividend was D0 = $3.75, and it is expected to grow at a 4% constant rate. What is its cost of common equity and its WACC?
rs = %
WACC = %
6.Midwest Electric Company (MEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of rd = 9% as long as it finances at its target capital structure, which calls for 50% debt and 50% common equity. Its last dividend (D0) was $1.75, its expected constant growth rate is 4%, and its common stock sells for $20. MEC's tax rate is 40%. Two projects are available: Project A has a rate of return of 15%, while Project B's return is 9%. These two projects are equally risky and about as risky as the firm's existing assets.
What is its cost of common equity?
What is the WACC?
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