Action Inc. was recently given a rating of A by Moody's and has a credit spread...

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Action Inc. was recently given a rating of A by Moody's and has a credit spread of 3.5% on its debt. The firm finances its operations with both debt and equity. Action Inc.s book value of debt is $80 million, currently trading at 125% of par value. The firm has book equity of $76 million, and 3 million shares trading at $40 per share. The firm's beta is 1.4, the return on the market portfolio is E(Rmarket) = 9.5%, and the risk-free rate is 3.5%, while the corporate tax rate is 25%. What is the weighted average cost of capital (wacc) of Action Inc? a) 8.24% b) 6.71% c) 9.20% d) 6.87% e) 8.64% Omicron Inc operates in the environmental sector. Its operations are financed only by equity and its price per share is currently $80. The firm expects earnings per share of $12 in the coming year, and plans to pay a dividend of $8 per share. The dividends of this company are expected to grow at a rate of g = 3% in the foreseeable future. Suppose that Omicron has a new investment opportunity that is expected to have a return of 10%. In order to undertake this project, the company would like to reduce its dividend pay-out rate to 25%. According to the dividend discount model of valuation, if it undertook this investment, Omicron's new price per share would be and Omicron undertake this investment. a) $80.00; may or may not b) $41.38; should not c) $54.55; should not d) $65.67; should e) $37.83; should not Action Inc. was recently given a rating of A by Moody's and has a credit spread of 3.5% on its debt. The firm finances its operations with both debt and equity. Action Inc.s book value of debt is $80 million, currently trading at 125% of par value. The firm has book equity of $76 million, and 3 million shares trading at $40 per share. The firm's beta is 1.4, the return on the market portfolio is E(Rmarket) = 9.5%, and the risk-free rate is 3.5%, while the corporate tax rate is 25%. What is the weighted average cost of capital (wacc) of Action Inc? a) 8.24% b) 6.71% c) 9.20% d) 6.87% e) 8.64% Omicron Inc operates in the environmental sector. Its operations are financed only by equity and its price per share is currently $80. The firm expects earnings per share of $12 in the coming year, and plans to pay a dividend of $8 per share. The dividends of this company are expected to grow at a rate of g = 3% in the foreseeable future. Suppose that Omicron has a new investment opportunity that is expected to have a return of 10%. In order to undertake this project, the company would like to reduce its dividend pay-out rate to 25%. According to the dividend discount model of valuation, if it undertook this investment, Omicron's new price per share would be and Omicron undertake this investment. a) $80.00; may or may not b) $41.38; should not c) $54.55; should not d) $65.67; should e) $37.83; should not