Growth Company's current share price is $19.85 and it is expected to pay a $0.85 dividend...

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Growth Company's current share price is $19.85 and it is expected to pay a $0.85 dividend per share next year. After that, the firm's dividends are expected to grow at a rate of 4.5% per year a. What is an estimate of Growth Company's cost of equity? b. Growth Company also has preference shares outstanding that pay a $2.30 fixed dividend. If these shares are currently priced at $27.90, what is Growth Company's cost of preference shares? c. Growth Company has existing debt issued three years ago with a coupon rate of 6.3%. The firm just issued new debt at par with a coupon rate of 6.7%. What is Growth Company's pre-tax cost of debt? d. Growth Company has 5.4 million ordinary shares outstanding and 1.3 million preference shares outstanding, and its equity has a total book value of $50.3 million. Its liabilities have a market value of $19.6 million. If Growth Company's ordinary and preference shares are priced as in parts a and b, what is the market value of Growth Company's assets? e. Growth Company faces a 40% tax rate. Given the information in parts a-d, and your answers to those problems, what is Growth Company's WACC? a. The required return (cost of capital) of levered equity is % (Round to two decimal places.) b. The cost of capital for preference shares is%. (Round to two decimal places.) c. The pre-tax cost of debt is the firm's YTM on current debt. Since the firm recently issued debt at par, then the coupon rate of that debt must be d. The market value of assets is $ million. (Round to two decimal places.) e. The weighted average cost of capital is %. (Round to two decimal places.) the YTM of the debt. Thus, the pre-tax cost of debt is ▼ Growth Company's current share price is $19.85 and it is expected to pay a $0.85 dividend per share next year. After that, the firm's dividends are expected to grow at a rate of 4.5% per year a. What is an estimate of Growth Company's cost of equity? b. Growth Company also has preference shares outstanding that pay a $2.30 fixed dividend. If these shares are currently priced at $27.90, what is Growth Company's cost of preference shares? c. Growth Company has existing debt issued three years ago with a coupon rate of 6.3%. The firm just issued new debt at par with a coupon rate of 6.7%. What is Growth Company's pre-tax cost of debt? d. Growth Company has 5.4 million ordinary shares outstanding and 1.3 million preference shares outstanding, and its equity has a total book value of $50.3 million. Its liabilities have a market value of $19.6 million. If Growth Company's ordinary and preference shares are priced as in parts a and b, what is the market value of Growth Company's assets? e. Growth Company faces a 40% tax rate. Given the information in parts a-d, and your answers to those problems, what is Growth Company's WACC? a. The required return (cost of capital) of levered equity is % (Round to two decimal places.) b. The cost of capital for preference shares is%. (Round to two decimal places.) c. The pre-tax cost of debt is the firm's YTM on current debt. Since the firm recently issued debt at par, then the coupon rate of that debt must be d. The market value of assets is $ million. (Round to two decimal places.) e. The weighted average cost of capital is %. (Round to two decimal places.) the YTM of the debt. Thus, the pre-tax cost of debt is ▼

Answer rating: 100% (QA)

a To estimate Growth Companys cost of equity we can use the dividend discount model Cost of equity Next years expected dividend Current share price Ex... View the full answer