Given the following information: interest rate 8% tax rate 30% dividend $1 price of the common stock

Fantastic news! We've Found the answer you've been seeking!

Question:

Given the following information: interest rate 8% tax rate 30% dividend $1 price of the common stock $50 growth rate of dividends 7% debt ratio 40%

a. Determine the firm's cost of capital.

b. If the debt ratio rises to 50 percent and the cost of funds remains the same, what is the new cost of capital?

c. If the debt ratio rises to 60 percent, the interest rate rises to 9 percent, and the price of the stock falls to $30, what is the cost of capital? d. Why is this cost different?

Related Book For answer-question

Fundamentals of corporate finance

ISBN: 978-0470876442

2nd Edition

Authors: Robert Parrino, David S. Kidwell, Thomas W. Bates

See More Books

Posted Date: Nov 27, 2019 06:25 AM

See More Questions

Given the following information about Elkridge Sporting Goods, Inc., construct a balance sheet for June 30, 2011. On that date the firm had cash and marketable securities of $25,135, accounts...
Given the following information for Smashville, Inc., construct an income statement for the year: Cost of goods sold: .......... $149,000 Investment income: .......... $1,900 Net sales:...
Given the following information about Mega Corps costs, provide answers to the questions below. (a) Total fixed costs equal.¨ (b) When the rate of output is equal to 1, AVC is equal to.¨ (c)...
A certain apple bruises if a net force greater than 9 . 5 N is exerted on it . Would a 0 . 1 3 k g apple be likely to bruise if it falls 1 . 8 m and stops after sinking 0 . 0 5 m into the grass?...
In your own words, briefly explain how a cash budget works and what it accomplishes with its last few lines of data.
1. All insurance policies are cryptically written documents. Therefore, some cryptically written documents are insurance policies. 2. No gemstones that do not contain chromium are emeralds....
Abbott Industries is a well-known supplier of pharmaceuticals worldwide. Founded by Dr. Wallace Abbott, the company was incorporated in 1900 after he had been developing and making pharmaceuticals...
The Garrett Company has the following transactions during the months of April and May: The cost of the inventory on April 1 is $5, $4, and $2 per unit, respectively, under the FIFO, average, and LIFO...
Lindal Corporation, organized in 2023, immediately filed an election for S corporation status under the rules of Subchapter S. What is the maximum amount of passive investment income that Lindal will...
Cermco produces and sells specialty customer relationship management (CRM) solutions to small and medium-size businesses in the United States and Canada. The company is more than 20 years old and has...
Record the purchases and sales above in the General Jounal Date 1-Jan 5-Jan 6-Jan 10-Jan 16-Jan 21-Jan Transaction Description Opening Balance Sale #1 Purchase 1 Purchase 2 Sale #2 Purchase 3 Linits...
(a) Use the information in the adjusted trial balance reported in Exercise 3-21 to compute the current ratio for Wilson Trucking. (b) Assuming Spalding (a competitor) has a current ratio of 1.5,...
Using Wilson Trucking Companys adjusted trial balance from Exercise 3-21, prepare its December 31 closing entries. Data from Exercise 3-21 Use the following adjusted trial balance at December 31 of...
Use the adjusted accounts for Stark Company from Exercise 3-16 to prepare the (1) Income statement (2) Statement of retained earnings for the year ended December 31 (3) Balance sheet at December 31....
In May 2018, the U.S. Energy Information Administration projected that the average retail price for regular-grade gasoline would be $2.79 per gallon for the remainder of the year. Do some research on...
Refer to E4-16. Required: Using the adjusted balances in E4-16, give the closing journal entry for the year ended December 31. Data From Exercise 4-16: Mint Cleaning Inc. prepared the following...
Consider the following Scala function definition: : = def f (x: Int) Int if (x == 0) 0 else x + f (x 1) With that definition, what is the result of evaluating the following Scala expression? 1(5)
Explain the buyers position in a typical negotiation for a business. Explain the sellers position. What tips would you offer a buyer about to begin negotiating the purchase of a business?
Patrick Seeley has $2,400 that he is looking to invest. His brother approached him with an investment opportunity that could double his money in four years. What interest rate would the investment...
Blackwell Automotive's balance sheet at the end of its most recent fiscal year shows the following information: In addition, it was reported that the firm had a net income of $156,042 on sales of...
The Imaginary Products Co. currently has debt with a market value of $300 million outstanding. The debt consists of 9 percent coupon bonds (semiannual coupon payments) which have a maturity of 15...
Compare the full sets of public service announcements (PSAs) represented by Figures 7.11, 7.12, and 7.13 by visiting http://city.milwaukee.gov/health/Safe-Sleep-Campaign. Which set is most effective?...
In a pair or in small groups, find three online shopping sites that sell similar types of merchandise (e.g., Backcountry.com, Moosejaw.com, REI.com). Consider the following questions: Who are the...
Ask someone to follow a set of instructions or to fill out a form. As an alternative, you also might test a document youve created for a course. You also may try ordering food from a website, such as...

Given the following information: interest rate 8% tax rate 30% dividend $1 price of the common stock

Question:

Expert Answer:

Fundamentals of corporate finance

Students also viewed these finance questions