What is the expected return on the corporation stock

Assignment Help Financial Management

Reference no: EM131886585

A corporation has 6,000,000 shares of stock outstanding at a price of $70 per share. They just paid a dividend of $2 and the dividend is expected to grow by 5% per year forever. The stock has a beta of .8, the current risk free rate is 4%, and the market risk premium is 6%. The corporation also has 400,000 bonds outstanding with a price of $1,100 per bond. The bond has a coupon rate of 7% with semiannual interest payments, a face value of $1,000, and 13 years to go until maturity. The company plans on adding debt until they reach their target debt ratio of 70%. They expect their cost of debt to be 8% and their cost of equity to be 12% under this new capital structure. The tax rate is 40%

1. What is the required return on the corporation's stock?

2. What is the expected return on the corporation's stock?

3. What is the yield to maturity on the company's debt?

Reference no: EM131886585

Questions Cloud

Payments required-single payment made : What single payment could be made at the beginning of the first year to achieve this objective?

French company have any transaction risk as result of deal : Does the French company have any transaction risk as a result of this deal? Should ABC company hedge this transaction?

What percent of their current market value capital structure : What percent of their current market value capital structure is made up of equity? Given the new cost of debt, what should be the new price of the bond?

Use covered interest arbitrage : If you use covered interest arbitrage for a 90-day investment, what will be the amount of U.S. dollars you will have after 90 days?

What is the expected return on the corporation stock : What is the required return on the corporation's stock? What is the expected return on the corporation's stock?

What is the net amount received by the corporation : what is the net amount received by the corporation if it acts rationally?

What is bond value if required rate of return increases : If the required rate of return is 3.50%, what is the value of the bond? What is the bond’s value if the required rate of return increases to 5.65%?

What is the yield to maturity on bond : What is the yield to maturity on a bond that you purchased for $1,069, The bond pays coupon interest semiannually.

Target capital structure-weighted average cost of capital : XYZ has a target capital structure of 20 percent common equity and the rest long term debt. what is XYZ's weighted average cost of capital?

User Account

All Pages