(e) (d) (c) (b) ENCE 2P91 #3 (15 points). April 18, 2024 Problems only outstanding debt...

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(e) (d) (c) (b) ENCE 2P91 #3 (15 points). April 18, 2024 Problems only outstanding debt issue is an 8% semiannual bond with ten years to maturity that currently sells for $1,148.77 (face value is $1,000). The company's stock currently sells for expects future dividends to grow at a 5% annual rate indefinitely. Flotation costs are 5% for debt $20 per share and has a beta of 1.75. The company recently paid a $1.25 per share dividend and and 7% for equity. The target debt-equity ratio for the company is 1.5 and its corporate tax rate is 40%. The risk-free rate is 4% and the expected return on the market is 6%. (a) What is the company's after-tax cost of debt? (3 marks) What is the company's cost of equity based on the CAPM? (2 marks) What is the company's cost of equity based on the dividend growth model? (2 marks) 13 ENCE 2P91 April 18, 2024 What is the company's WACC using the cost of equity based on the CAPM? (2 marks) Assume the company requires $2,000,000 to fund a new project, which will be financed by debt. What amount must the company raise accounting for the flotation costs? What is the initial cost number (Co) that the company should use when evaluating the project? (4 marks) (f) Assume the new project is somewhat riskier than the usual project the firm undertakes. If management applies an adjustment actor +2% or riskier projects, what discount rate should the company use for NPV analys s of the new project? (2 points). (e) (d) (c) (b) ENCE 2P91 #3 (15 points). April 18, 2024 Problems only outstanding debt issue is an 8% semiannual bond with ten years to maturity that currently sells for $1,148.77 (face value is $1,000). The company's stock currently sells for expects future dividends to grow at a 5% annual rate indefinitely. Flotation costs are 5% for debt $20 per share and has a beta of 1.75. The company recently paid a $1.25 per share dividend and and 7% for equity. The target debt-equity ratio for the company is 1.5 and its corporate tax rate is 40%. The risk-free rate is 4% and the expected return on the market is 6%. (a) What is the company's after-tax cost of debt? (3 marks) What is the company's cost of equity based on the CAPM? (2 marks) What is the company's cost of equity based on the dividend growth model? (2 marks) 13 ENCE 2P91 April 18, 2024 What is the company's WACC using the cost of equity based on the CAPM? (2 marks) Assume the company requires $2,000,000 to fund a new project, which will be financed by debt. What amount must the company raise accounting for the flotation costs? What is the initial cost number (Co) that the company should use when evaluating the project? (4 marks) (f) Assume the new project is somewhat riskier than the usual project the firm undertakes. If management applies an adjustment actor +2% or riskier projects, what discount rate should the company use for NPV analys s of the new project? (2 points).