Reference no: EM131285817

Corporate Finance

Please answer the following.

1. Watters Umbrella Corp. issued 15-year bonds 2 years ago at a coupon rate of 6.6 percent. The bonds make semiannual payments. If these bonds currently sell for 115 percent of par value, what is the YTM? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

2. A Japanese company has a bond outstanding that sells for 90 percent of its ¥100,000 par value. The bond has a coupon rate of 4.9 percent paid annually and matures in 20 years.

What is the yield to maturity of this bond? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

3. Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 15 years to maturity, and a coupon rate of 6.9 percent paid annually.

If the yield to maturity is 8 percent, what is the current price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

4.The Starr Co. just paid a dividend of $1.15 per share on its stock. The dividends are expected to grow at a constant rate of 7 percent per year, indefinitely. Investors require a return of 12 percent on the stock.

What is the current price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

What will the price be in three years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

What will the price be in 12 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

5. Siblings, Inc., is expected to maintain a constant 3 percent growth rate in its dividends, indefinitely. The company has a dividend yield of 4.8 percent.

What is the required return on the company's stock? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

6. The next dividend payment by ECY, Inc., will be $1.80 per share. The dividends are anticipated to maintain a growth rate of 5 percent, forever. The stock currently sells for $35 per share.

What is the required return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

7. Zoom stock has a beta of 1.46. The risk-free rate of return is 3.07 percent and the market rate of return is 11.81 percent. What is the amount of the risk premium on Zoom stock?

8. The risk-free rate of return is 3.68 percent and the market risk premium is 7.84 percent. What is the expected rate of return on a stock with a beta of 1.32?

9.Miller Manufacturing has a target debt-equity ratio of .70. Its cost of equity is 14 percent, and its cost of debt is 7 percent. If the tax rate is 38 percent, what is the company's WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

10. Mullineaux Corporation has a target capital structure of 85 percent common stock and 15 percent debt. Its cost of equity is 15 percent, and the cost of debt is 6 percent. The relevant tax rate is 30 percent.

What is the company's WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

11. Filer Manufacturing has 4 million shares of common stock outstanding. The current share price is $70, and the book value per share is $5. The company also has two bond issues outstanding. The first bond issue has a face value $60 million, a coupon of 5 percent, and sells for 95 percent of par. The second issue has a face value of $40 million, a coupon of 6 percent, and sells for 104 percent of par. The first issue matures in 20 years, the second in 4 years.

a. What are the company's capital structure weights on a book value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.)

Equity / Value

Debt / Value

b. What are the company's capital structure weights on a market value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.)

Equity / Value

Debt / Value

c. Which are more relevant?

Market value weights

Book value weights

12. Titan Mining Corporation has 10.1 million shares of common stock outstanding and 450,000 5 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $49 per share and has a beta of 1.55, and the bonds have 15 years to maturity and sell for 116 percent of par. The market risk premium is 8.9 percent, T-bills are yielding 4 percent, and the company's tax rate is 38 percent.

a. What is the firm's market value capital structure? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.)

Weight

Debt

Equity

b. If the company is evaluating a new investment project that has the same risk as the firm's typical project, what rate should the firm use to discount the project's cash flows? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)