Reference no: EM13885044
Use the following info. A corporation has 10,000,000 shares of stock outstanding at a of $60 per share. They just paid a dividend of $3 and the dividend is expected to grow by 6% per year forever. The stock has a beta of 1.2 the current risk free rate is 3% and the market risk premium is 5%. The corporation also has 500,000 bonds outstanding with a price of 1,100 per bond. The bond has a coupon rate of 9% with semiannual interest payments, a face value of 1,000 and 13 years to go until maturity. The company plans on paying off r he debt until they reach their target debt ratio of 30%. They expect their cost of debt to be 6% and their cost of equity to be 9% under this new capital structure. The tax rate is 40%.
1. What is the required return on corporation's stock?
a. 9% b. 10.6% c. 11.3% d.12.2%
2. What is the expected return on the corporation's stock?
a 9% b 10.6% c 11.3% d 12.2%
3. What is the yield to maturity on the company's debt?
a. 7.25% b 7.75% c 8.25% d 8.75%
4. What % of their current market value capital structure is made up of equity?
a. 35% b 42% c 52% d 60%
5. What is their WACC using their target Capital structure and expected cosr of debt and equity?
a 7.4% b 8.5% c 9.1% D 9.8%
6. Given the new cost of deb, what should be the new price of the bond?
a. $920 b $1060 c $1172 d $1268
7. Given the new cost of equity, what should be the new price of the stock?
a. $71 b $82 c $91 d $106
|
What is the current price per share
: A company had EPS of $5 last year and a PO ratio of 50%. The company's stock price, earnings, and dividends are all growing at a constant rate of 4%. If the required return on the company's stock is 8%, what is the current price per share?
|
|
Describe the risk structure of the interest rates
: Describe the risk structure of the interest rates. Describe the classical theory of interest rate determination Compare and contrast the expectations theory and the liquidity premium theory of the term structure of interest rates.
|
|
Considering buying new farm that it plans to operate
: Archer Daniels Midland Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $12 million. This investment will consist of $2.00 million for land and $10.00 million for trucks an..
|
|
Yield to maturity remains constant
: Chick-Fil-A bonds currently sells for $1,025. They have a 9 year maturity, and 8% annual coupon, and a par value of $1,000. Assume that the yield to maturity remains constant for the next 3 years. What is the price 3 years from today?
|
|
What is the yield to maturity on the companys debt
: Use the following info. A corporation has 10,000,000 shares of stock outstanding at a of $60 per share. They just paid a dividend of $3 and the dividend is expected to grow by 6% per year forever. What is the required return on corporation's stock? W..
|
|
Southgate net credit
: Southgate company has current assets of 3 million of which 750000 are account receivable. its current liabilities total 2 million of which 500000 are accounts payable and 100000 are wages payable. Southgate net credit is: How much would you pay for a..
|
|
Future value-make single investment
: (Future Value) Sarah Wiggum would like to make a single investment and have $2 million at the time of her retirement in 35 years. She has found a mutual fund that will earn 4 percent annually. How much will Sarah have to invest today? What if Sarah w..
|
|
Forecast are often related to sales because
: Which of the following is not a source of a short term debt? An example of systematic risk is when the company's value decline to. Forecast are often related to sales because
|
|
Required return exceed farleys required return
: Bradford Manufacturing Company has a beta of 1.3, while Farley Industries has a beta of 0.85. The required return on an index fund that holds the entire stock market is 10.5%. The risk-free rate of interest is 6.5%. By how much does Bradford's requir..
|