Reference no: EM133006088
Questions -
Q1. The Dava Outlet has paid annual dividends of RM0.65, RM0.70, RM0.72, and RM0.75 per share over the last four years, respectively. The stock is currently selling for RM26 a share. What is this firm's cost of equity?
Q2. The Frozen Food is considering a new project it considers to be a little riskier than its current operations. Thus, management has decided to add an additional 1.5 percent to the company's overall cost of capital when evaluating this project. The project has an initial cash outlay of RM62,000 and projected cash inflows of RM17,000 in year one, RM28,000 in year two, and RM30,000 in year three. The firm uses 25 percent debt and 75 percent common stock as its capital structure. The company's cost of equity is 15.5 percent while the after tax cost of debt for the firm is 6.1 percent. What is the projected net present value of the new project?
Q3. Suppose your company needs RM14 million to build a new assembly line. Your target debt-equity ratio is 0.84. The flotation cost for new equity is 9.5 percent, but the floatation cost for debt is only 2.5 percent. What is the true cost of building the new assembly line after taking flotation costs into account?
Q4. A firm has debt of RM12,000, a leveraged value of RM26,400, a pre-tax cost of debt of 9.20 percent, a cost of equity of 17.6 percent, and a tax rate of 37 percent. What is the firm's weighted average cost of capital?
Q5. Sutra Corporation has 14 million shares of common stock outstanding, 900,000 shares of 9 percent preferred stock outstanding and 210,000 ten percent semiannual bonds outstanding, par value RM1,000 each. The common stock currently sells for RM34 per share and has a beta of 1.15, the preferred stock currently sells for RM80 per share, and the bonds have 17 years to maturity and sell for 91 percent of par. The market risk premium is 11.5 percent, T-bills are yielding 7.5 percent, and the firm's tax rate is 32 percent. What discount rate should the firm apply to a new project's cash flows if the project has the same risk as the firm's typical project?
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