Reference no: EM131093983
Problems on 'Cost of capital'
1. Thatcher Corporation's bonds will mature in 10 years. The bonds have a face value of $1,000 and an 8 percent coupon rate, paid semiannually. The price of the bond is $1,100. What is the firm's cost (percentage rate) of borrowing money under these market conditions?
2. Bruner Aeronautics has preferred stock outstanding with a par value of $100. The stock pays a quarterly dividend of $2 and has a current price of $80. What will be Bruner's cost of funds if the company decided to issue new preferred stocks?
3. Javits & Sons' common stock is currently trading at $30 a share. The stock is expected to pay a dividend of $3.00 a share at the end of the year (D1=$3.00), and the dividend is expected to grow at a constant rate of 5 percent a year. If the company were to issue external equity, it would incur a 10 percent flotation cost. What are the costs of internal and external equity?
4. The Heuser Company's currently outstanding 10 percent coupon bonds have a yield to maturity of 12 percent. Heuser believes it could issue at par new bonds that would provide a similar yield to maturity. If its marginal tax rate is 35 percent, what is Heuser's after-tax cost of debt?
5. Trivoli Industries plans to issue some $100 par preferred stock with an 11 percent dividend. The stock is selling on the market for $97.00, but Trivoli must pay flotation costs of 5 percent of the market price, so the net price the firm will receive is $92.15 per share. What is Trivoli's cost of preferred stock with flotation considered?
6. The earnings, dividends, and stock price of Carpetto Technologies Inc. are expected to grow at 7 percent per year in the future. Carpetto's common stock sells for $23 per share, its last dividend was $2.00, and the company will pay a dividend of $2.14 at the end of the current year.
a. Using the discounted cash flow approach, what is its cost of common equity?
b. If the firm's beta is 1.6, the risk-free rate is 9 percent, and the average return on the market is 13 percent, what will be the firm's cost of common equity using the CAPM approach?
c. If the firm's bonds earn a return of 12 percent, what will be the firm's cost of common equity using the own-bond-yield-plus-risk-premium? (Use a risk premium of 4%.)
d. On the basis of the results obtained in parts a through c, what would you estimate Carpetto's cost of common equity to be?
|
What leadership qualities do you possess
: How has this experience helped develop professionalism skills, such as networking, team building? What leadership qualities do you possess and how do you envision applying them to your public health career?
|
|
Review the psychodynamic approaches sections on the dvd
: Review the "Psychodynamic Approaches" sections on the DVD, Counseling: Theories in Action. Pay particular attention to the methods used by the therapists to gather information related to their clients' presenting issues. Discern some of the basic ..
|
|
Business models and competitive advantage
: 250-350 word reflective statement on the weeks' learning, and how it has affected your thought process, development, and professional disposition. This statement should be an opportunity for you to reflect on your personal learning process-challe..
|
|
Cultural aspects of marketing in foreign country
: Write a 10 page Research Paper on the Cultural Aspects of Marketing in a Foreign Country of your choice (or consider Saudi Arabia, Colombia, Nigeria, Jamaica, or Vietnam, etc). Minimum 5 qualitative references. Word document MUST be in APA forma..
|
|
What would you estimate carpettos cost of common equity
: On the basis of the results obtained in parts a through c, what would you estimate Carpetto's cost of common equity to be?
|
|
Discusses project risks and its implications to failure
: The following article, discusses project risks and its implications to failure. Identify how lack of vendor (procurement processes) and quality processes led to increased negative risks that ultimately impacted this project. Explain the negative a..
|
|
Cumbersome and inhibit the discussion process
: Use the words "Prohibits" or "Does Not Prohibit" in the subject line of your thread, depending upon your conclusion. Do not use attachments as these are cumbersome and inhibit the discussion process.
|
|
What is the optimal consumption plan
: Suppose that a preference ordering on R+2 can be represented by the utility function u(x) = (1/2)x12 + In (x2). Suppose the prices are p1 = 2, p2 = 1. If wealth is w = 4, what is the optimal consumption plan
|
|
This portfolio project focuses on assessing and integrating
: This Portfolio Project focuses on assessing and integrating project requirements in relation to user needs and organizational goals. Review the PMI case study about Refurbishing Heathrow Airport Terminal One, with an emphasis on how you would asse..
|