Reference no: EM132467654

Question 1 : The stock is currently selling for $15.25 per share, and it would incur a 7% floatation cost if it is issue new share. It recently paid a dividend of $0.80 per share on common stock. The common stock investors expect a constant rate of 6% per year for its dividend payments. The company also issue a noncallable $1,000 par value, 20-year, 7.25% bonds with semiannual payments are selling for $875.00. The beta is 1.25, the current market risk premium is 6% and the risk free rate is 5.50%. Its preferred stock currently sells for $10 a share and pays a dividend of $1.00 per share. The firm's tax rate is 40%.The target capital structure consists of 75% common stock, 15% debt, and 10% preferred stock.Estimate the firm's after tax cost of debt.

Select one:

a. 8.57%

b. 4.28%

c. 5.14%

d. 7.25%

e. 3.63%

Problem : Refer to Question 1. What is the firm's cost of new common stock with floatation cost?

Select one:

a. 11.56%

b. 11.98%

c. 12.35%

d. 13.00%

e. 13.65%

Problem : Refer to Question 1. Based on the CAPM, what is the firm's cost of equity?

Select one:

a. 11.15%

b. 11.73%

c. 12.35%

d. 13.00%

e. 13.65%

Problem : Refer to Question 1. Based on the discounted cash flow (DCF), what is the firm's cost of equity without floatation cost?

Select one:

a. 11.56%

b. 11.25%

c. 12.35%

d. 13.00%

e. 13.65%

Problem : Refer to Question 1.Estimate the firm's cost of preferred stock including floatation.

Select one:

a. 10.50%

b. 10.00%

c. 10.75%

d. 13.00%

e. 13.65%

Problem : Refer to Question 1. Estimate the company's WACC, assuming it will issue the new common stock to finance the equity portion of its capital budgeting?

Select one:

a. 10.50%

b. 9.76%

c. 10.84%

d. 13.00%

e. 13.65%