ABC Inc. can sell bonds with 20 years maturity, 10% coupon, and $1,000 Face Value for...

     

Transcribed Image Text:

ABC Inc. can sell bonds with 20 years maturity, 10% coupon, and $1,000 Face Value for $850.61. What is the cost of bond financing (not adjusted for tax and flotation cost)? ABC Inc. can sell bonds with 20 years maturity, 10% coupon, and $1,000 Face Value for $850.61. ABC Inc. pays 30% marginal tax. What is the after-tax cost of bond financing? . The Holmes Company's currently outstanding bonds have an 8% coupon and a 14% yield to maturity. Holmes believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 25%, what is Holmes' after-tax cost of debt? Round your answer to two decimal places. Torch Industries can issue perpetual preferred stock at a price of $56.00 a share. The stock would pay a constant annual dividend of $7.00 a share. What is the company's cost of preferred stock, rp? Round your answer to two decimal places. The stocks of Baxter Inc. have a beta of 1.25. If the risk-free interest rate is 5% and the expected rate of return on the market portfolio is 15%, what is Baxter's cost of equity (according to the CAPM)? The Evanec Company's next expected dividend, D1, is $3.05; its growth rate is 5%; and its common stock now sells for $40.00. New stock (external equity) can be sold to net $36.00 per share. What is Evanec's cost of retained earnings, rs? Do not round intermediate calculations. Round your answer to two decimal places. rs = % What is Evanec's percentage flotation cost, F? Round your answer to two decimal places. F = % What is Evanec's cost of new common stock, re? Do not round intermediate calculations. Round your answer to two decimal places. re = % Banyan Co.'s common stock currently sells for $58.25 per share. The growth rate is a constant 6%, and the company has an expected dividend yield of 4%. The expected long-run dividend payout ratio is 20%, and the expected return on equity (ROE) is 7.5%. New stock can be sold to the public at the current price, but a flotation cost of 10% would be incurred. What would be the cost of new equity? Do not round intermediate calculations. Round your answer to two decimal places. Travis Industries plans to issue perpetual preferred stock with an $11.00 dividend. The stock is currently selling for $94.50, but flotation costs will be 10% of the market price, so the net price will be $85.05 per share. What is the cost of the preferred stock, including flotation? Round your answer to two decimal places. • Palencia Paints Corporation has a target capital structure of 25% debt and 75% common equity, with no preferred stock. Its before-tax cost of debt is 11%, and its marginal tax rate is 25%. The current stock price is PO = $34.50. The last dividend was DO = $4.00, and it is expected to grow at a 4% constant rate. What is its cost of common equity and its WACC? Do not round intermediate calculations. Round your answers to two decimal places. Jarett & Sons's common stock currently trades at $25.00 a share. It is expected to pay an annual dividend of $1.75 a share at the end of the year (D1 = $1.75), and the constant growth rate is 4% a year. What is the company's cost of common equity if all of its equity comes from retained earnings? Do not round intermediate calculations. Round your answer to two decimal places. % If the company issued new stock, it would incur a 14% flotation cost. What would be the cost of equity from new stock? Do not round intermediate calculations. Round your answer to two decimal places. % The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow 5% per year. Callahan's common stock currently sells for $25.75 per share; its last dividend was $1.80; and it will pay a $1.89 dividend at the end of the current year. Using the DCF approach, what is its cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places. % If the firm's beta is 1.5, the risk-free rate is 3%, and the average return on the market is 12%, what will be the firm's cost of common equity using the CAPM approach? Round your answer to two decimal places. % If the firm's bonds earn a return of 11%, based on the bond-yield-plus-risk-premium approach, what will be rs? Use the midpoint of the risk premium range discussed in Section 10-5 in your calculations. Round your answer to two decimal places. % If you have equal confidence in the inputs used for the three approaches, what is your estimate of Callahan's cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places. % Empire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of rd = 11% as long as it finances at its target capital structure, which calls for 30% debt and 70% common equity. Its last dividend (DO) was $2.10, its expected constant growth rate is 4%, and its common stock sells for $21. EEC's tax rate is 25%. Two projects are available: Project A has a rate of return of 15%, and Project B's return is 10%. These two projects are equally risky and about as risky as the firm's existing assets. What is its cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places. % What is the WACC? Do not round intermediate calculations. Which projects should Empire accept? ABC Inc. can sell bonds with 20 years maturity, 10% coupon, and $1,000 Face Value for $850.61. What is the cost of bond financing (not adjusted for tax and flotation cost)? ABC Inc. can sell bonds with 20 years maturity, 10% coupon, and $1,000 Face Value for $850.61. ABC Inc. pays 30% marginal tax. What is the after-tax cost of bond financing? . The Holmes Company's currently outstanding bonds have an 8% coupon and a 14% yield to maturity. Holmes believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 25%, what is Holmes' after-tax cost of debt? Round your answer to two decimal places. Torch Industries can issue perpetual preferred stock at a price of $56.00 a share. The stock would pay a constant annual dividend of $7.00 a share. What is the company's cost of preferred stock, rp? Round your answer to two decimal places. The stocks of Baxter Inc. have a beta of 1.25. If the risk-free interest rate is 5% and the expected rate of return on the market portfolio is 15%, what is Baxter's cost of equity (according to the CAPM)? The Evanec Company's next expected dividend, D1, is $3.05; its growth rate is 5%; and its common stock now sells for $40.00. New stock (external equity) can be sold to net $36.00 per share. What is Evanec's cost of retained earnings, rs? Do not round intermediate calculations. Round your answer to two decimal places. rs = % What is Evanec's percentage flotation cost, F? Round your answer to two decimal places. F = % What is Evanec's cost of new common stock, re? Do not round intermediate calculations. Round your answer to two decimal places. re = % Banyan Co.'s common stock currently sells for $58.25 per share. The growth rate is a constant 6%, and the company has an expected dividend yield of 4%. The expected long-run dividend payout ratio is 20%, and the expected return on equity (ROE) is 7.5%. New stock can be sold to the public at the current price, but a flotation cost of 10% would be incurred. What would be the cost of new equity? Do not round intermediate calculations. Round your answer to two decimal places. Travis Industries plans to issue perpetual preferred stock with an $11.00 dividend. The stock is currently selling for $94.50, but flotation costs will be 10% of the market price, so the net price will be $85.05 per share. What is the cost of the preferred stock, including flotation? Round your answer to two decimal places. • Palencia Paints Corporation has a target capital structure of 25% debt and 75% common equity, with no preferred stock. Its before-tax cost of debt is 11%, and its marginal tax rate is 25%. The current stock price is PO = $34.50. The last dividend was DO = $4.00, and it is expected to grow at a 4% constant rate. What is its cost of common equity and its WACC? Do not round intermediate calculations. Round your answers to two decimal places. Jarett & Sons's common stock currently trades at $25.00 a share. It is expected to pay an annual dividend of $1.75 a share at the end of the year (D1 = $1.75), and the constant growth rate is 4% a year. What is the company's cost of common equity if all of its equity comes from retained earnings? Do not round intermediate calculations. Round your answer to two decimal places. % If the company issued new stock, it would incur a 14% flotation cost. What would be the cost of equity from new stock? Do not round intermediate calculations. Round your answer to two decimal places. % The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow 5% per year. Callahan's common stock currently sells for $25.75 per share; its last dividend was $1.80; and it will pay a $1.89 dividend at the end of the current year. Using the DCF approach, what is its cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places. % If the firm's beta is 1.5, the risk-free rate is 3%, and the average return on the market is 12%, what will be the firm's cost of common equity using the CAPM approach? Round your answer to two decimal places. % If the firm's bonds earn a return of 11%, based on the bond-yield-plus-risk-premium approach, what will be rs? Use the midpoint of the risk premium range discussed in Section 10-5 in your calculations. Round your answer to two decimal places. % If you have equal confidence in the inputs used for the three approaches, what is your estimate of Callahan's cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places. % Empire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of rd = 11% as long as it finances at its target capital structure, which calls for 30% debt and 70% common equity. Its last dividend (DO) was $2.10, its expected constant growth rate is 4%, and its common stock sells for $21. EEC's tax rate is 25%. Two projects are available: Project A has a rate of return of 15%, and Project B's return is 10%. These two projects are equally risky and about as risky as the firm's existing assets. What is its cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places. % What is the WACC? Do not round intermediate calculations. Which projects should Empire accept?

Answer rating: 100% (QA)

Lets calculate the answers to each of the given questions 1 Cost of Bond Financing The cost of bond financing is the yield to maturity YTM on the bond You can use the following formula to calculate it ... View the full answer