Reference no: EM13789838

1. You were hired as a consultant to ABC Company, whose target capital structure is 35% debt, 15% preferred, and 50% common equity. The before-tax cost of debt is 6.50%, the yield on the preferred is 6.00%, the cost of common stock is 11.25%, and the tax rate is 40%. What is the WACC?

2. If the market value of debt is $155,527, market value of preferred stock is $78,829, and market value of common equity is 312,100, what is the weight of preferred stock?

3. The 8 percent annual coupon bonds of the ABC Co. are selling for $880.76. The bonds mature in 10 years. The bonds have a par value of $1,000 and payments are made semi-annually? What is the before-tax cost of debt?

4. ABC Industries will pay a dividend of $2 next year on their common stock. The company predicts that the dividend will increase by 7 percent each year indefinitely. What is the dividend yield if the stock is selling for $33 a share?

5. The 7 percent annual coupon bonds of the ABC Co. are selling for $950.41. The bonds mature in 8 years. The bonds have a par value of $1,000 and payments are made semi-annually. If the tax rate is 35%, what is the after-tax cost of debt?

6. ABC, Inc., has 113 shares of common stock outstanding at a price of $97 a share. They also have 397 shares of preferred stock outstanding at a price of $54 a share. There are 414, 8 percent bonds outstanding that are priced at $33. The bonds mature in 16 years and pay interest semiannually. What is the capital structure weight of the preferred stock?

7. The 8 percent annual coupon bonds of the ABC Co. are selling for $1,080.69. The bonds mature in 10 years. The bonds have a par value of $1,000. What is the before-tax cost of debt?

8. Several years ago, the ABC Company sold a $1,000 par value bond that now has 20 years to maturity and a 7.00% annual coupon that is paid semiannually. The bond currently sells for $925 and the company's tax rate is 40%. What is the after-tax cost of debt?

9. The 8.5 percent annual coupon bonds of the ABC Co. are selling for $1,179. The bonds mature in 12 years. The bonds have a par value of $1,000. If the tax rate is 30%, what is the after-tax cost of debt?

10. ABC Inc.'s perpetual preferred stock sells for $58.1 per share, and it pays an $6.7 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of $4 per share. What is the company's cost of preferred stock for use in calculating the WACC?

11. The before-tax cost of debt is 6 percent. What is the after-tax cost of debt if the tax rate is 41 percent?

12. The ABC Company has a cost of equity of 23.8 percent, a pre-tax cost of debt of 5 percent, and a tax rate of 31 percent. What is the firm's weighted average cost of capital if the proportion of debt is 39.9%?

13. ABC Industries will pay a dividend of $2 next year on their common stock. The company predicts that the dividend will increase by 6 percent each year indefinitely. What is the firm's cost of equity if the stock is selling for $33 a share?

14. If the market value of debt is $128,737, market value of preferred stock is $68,840, and market value of common equity is 200,589, what is the weight of common equity?

15. ABC's last dividend paid was $2.6, its required return is 16%, its growth rate is 3.7%, and its growth rate is expected to be constant in the future. What is Sorenson's expected stock price in 7 years, i.e., what is P7?

16. If D1 = $4.26, g (which is constant) = 2%, and P0 = $67.54, what is the stock's expected dividend yield for the coming year?

17. A stock is expected to pay a dividend of $2.4 at the end of the year. The required rate of return is rs = 11.4%, and the expected constant growth rate is g = 7.5%. What is the stock's current price?

18. A stock's next dividend is expected to be $1.8. The required rate of return on stock is 16.3%, and the expected constant growth rate is 7.6%. What is the stock's current price?

19. If D1 = $2.1, g (which is constant) = 2.4%, and P0 = $60.5, what is the stock's expected total return for the coming year?

20. A stock just paid a dividend of $0.6. The required rate of return is 11%, and the constant growth rate is 3.9%. What is the current stock price?

21. ABC just paid a dividend of D0 = $4. Analysts expect the company's dividend to grow by 33% this year, by 28% in Year 2, and at a constant rate of 6% in Year 3 and thereafter. The required return on this stock is 17%. What is the best estimate of the stock's current market value?

22. The common stock of Connor, Inc., is selling for $89 a share and has a dividend yield of 3.9 percent. What is the dividend amount?

23. ABC's last dividend was $3.1. The dividend growth rate is expected to be constant at 20% for 3 years, after which dividends are expected to grow at a rate of 5% forever. If the firm's required return (rs) is 16%, what is its current stock price (i.e. solve for Po)?

24. The common stock of Wetmore Industries is valued at $59.8 a share. The company increases their dividend by 6.7 percent annually and expects their next dividend to be $0.6. What is the required rate of return on this stock?

25. ABC's stock has a required rate of return of 18.2%, and it sells for $70 per share. The dividend is expected to grow at a constant rate of 5.7% per year. What is the expected year-end dividend, D1?

26. A stock just paid a dividend of D0 = $0.6. The required rate of return is rs = 18.6%, and the constant growth rate is g = 6.1%. What is the current stock price?

27. If last dividend = $3, g = 3.7%, and P0 = $62.4, what is the stock's expected total return for the coming year?

28. ABC Enterprises' stock is currently selling for $64.5 per share. The dividend is projected to increase at a constant rate of 5.8% per year. The required rate of return on the stock is 12%. What is the stock's expected price 5 years from today (i.e. solve for P5)?

29. ABC Enterprises' stock is expected to pay a dividend of $1.9 per share. The dividend is projected to increase at a constant rate of 6.1% per year. The required rate of return on the stock is 17.8%. What is the stock's expected price 3 years from today (i.e. solve for P3)?

30. ABC is expected to pay a dividend of $1.4 per share at the end of the year. The stock sells for $109 per share, and its required rate of return is 18.3%. The dividend is expected to grow at some constant rate, g, forever. What is the growth rate (i.e. solve for g)?

31. ABC Inc., is expected to pay an annual dividend of $4 per share next year. The required return is 14.3 percent and the growth rate is 5.3 percent. What is the expected value of this stock five years from now?

32. ABC Company's last dividend was $4.9. The dividend growth rate is expected to be constant at 25% for 2 years, after which dividends are expected to grow at a rate of 5% forever. The firm's required return (rs) is 17%. What is its current stock price (i.e. solve for Po)?