Homework: Valuation and Cost of Capital... M Sample Five-Year Marketing Plan for Par... Question 21 -...

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Homework: Valuation and Cost of Capital... M Sample Five-Year Marketing Plan for Par... Question 21 - Homework: Valuation and... Saved Help Valuation and Cost of Capital Assignment Check my work mode: This shows what is correct or incorrect for the work you have completed so far. It does not indicate comple ation A-Rod Manufacturing Company is trying to calculate its cost of capital for use in making a capital budgeting decision. Mr. Jeter, the vice president of finance, has given you the following information and has asked you to compute the weighted average cost of capital. The company currently has outstanding a bond with a 11.5 percent coupon rate and another bond with an 9.1 percent rate. The firm has been informed by its investment banker that bonds of equal risk and credit rating are now selling to yield 12.4 percent. The common stock has a price of $69 and an expected dividend (D1) of $1.89 per share. The historical growth pattern (g) for dividends is as follows: $1.44 1.73 1.89 The preferred stock is selling at $89 per share and pays a dividend of $8.50 per share. The corporate tax rate is 30 percent. The flotation cost is 2.0 percent of the selling price for preferred stock. The optimum capital structure for the firm is 25 percent debt, 20 percent preferred stock, and 55 percent common equity in the form of retained earnings. a. Compute the average historical growth rate. Note: Do not round intermediate calculations. Round your answer to the nearest whole percent and use this value as g. Input your answer as a whole percent. 1.58 Mc Graw Hill Answer is complete and correct. 9.00 % Next > b. Compute the cost of capital for the individual components in the capital structure. Note: Use the rounded whole percent computed in part a for g. Do not round any other intermediate calculations. Input your Growth rate O 80 F2 F3 #3 < Prev 21 of 25 OOO OOD F4 F5 MacBook Air F6 $ % & 4 5 6 27 F7 * 00 8 Q W E R T Y U 7 2 A Z S D F G X C > B H DII F8 F9 F10 9 0 0 J K L Z M P F11 GE < > Homework: Valuation and Cost of Capital... M Sample Five-Year Marketing Plan for Par... M Question 21 - Homework: Valuation and... on and Cost of Capital Assignment i Saved Check my work mode: This shows what is correct or incorrect for the work you have completed so far. It does not indicate com b. Compute the cost of capital for the individual components in the capital structure. Note: Use the rounded whole percent computed in part a for g. Do not round any other intermediate calculations. Input your answers as a percent rounded to 2 decimal places. Answer is complete but not entirely correct. Debt Preferred stock Common equity Weighted Cost 8.68 % 9.75 2.74 x c. Calculate the weighted cost of each source of capital and the weighted average cost of capital. Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places. Answer is complete but not entirely correct. Weighted Cost Debt Preferred stock 2.17 1.95 % Common equity 6.73 X Weighted average cost of capital 10.85 % 80 F1 F2 F3 2 W S #3 S 4 000 000 F4 F5 < Prev 21 of 25 Next > MacBook Air % 75 6 10 DII F6 F7 F8 E R T Y D F G 27 & H 8 *> ( 9 F9 F10 0 0 P J K L F Homework: Valuation and Cost of Capital... M Sample Five-Year Marketing Plan for Par... Question 21 - Homework: Valuation and... Saved Help Valuation and Cost of Capital Assignment Check my work mode: This shows what is correct or incorrect for the work you have completed so far. It does not indicate comple ation A-Rod Manufacturing Company is trying to calculate its cost of capital for use in making a capital budgeting decision. Mr. Jeter, the vice president of finance, has given you the following information and has asked you to compute the weighted average cost of capital. The company currently has outstanding a bond with a 11.5 percent coupon rate and another bond with an 9.1 percent rate. The firm has been informed by its investment banker that bonds of equal risk and credit rating are now selling to yield 12.4 percent. The common stock has a price of $69 and an expected dividend (D1) of $1.89 per share. The historical growth pattern (g) for dividends is as follows: $1.44 1.73 1.89 The preferred stock is selling at $89 per share and pays a dividend of $8.50 per share. The corporate tax rate is 30 percent. The flotation cost is 2.0 percent of the selling price for preferred stock. The optimum capital structure for the firm is 25 percent debt, 20 percent preferred stock, and 55 percent common equity in the form of retained earnings. a. Compute the average historical growth rate. Note: Do not round intermediate calculations. Round your answer to the nearest whole percent and use this value as g. Input your answer as a whole percent. 1.58 Mc Graw Hill Answer is complete and correct. 9.00 % Next > b. Compute the cost of capital for the individual components in the capital structure. Note: Use the rounded whole percent computed in part a for g. Do not round any other intermediate calculations. Input your Growth rate O 80 F2 F3 #3 < Prev 21 of 25 OOO OOD F4 F5 MacBook Air F6 $ % & 4 5 6 27 F7 * 00 8 Q W E R T Y U 7 2 A Z S D F G X C > B H DII F8 F9 F10 9 0 0 J K L Z M P F11 GE < > Homework: Valuation and Cost of Capital... M Sample Five-Year Marketing Plan for Par... M Question 21 - Homework: Valuation and... on and Cost of Capital Assignment i Saved Check my work mode: This shows what is correct or incorrect for the work you have completed so far. It does not indicate com b. Compute the cost of capital for the individual components in the capital structure. Note: Use the rounded whole percent computed in part a for g. Do not round any other intermediate calculations. Input your answers as a percent rounded to 2 decimal places. Answer is complete but not entirely correct. Debt Preferred stock Common equity Weighted Cost 8.68 % 9.75 2.74 x c. Calculate the weighted cost of each source of capital and the weighted average cost of capital. Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places. Answer is complete but not entirely correct. Weighted Cost Debt Preferred stock 2.17 1.95 % Common equity 6.73 X Weighted average cost of capital 10.85 % 80 F1 F2 F3 2 W S #3 S 4 000 000 F4 F5 < Prev 21 of 25 Next > MacBook Air % 75 6 10 DII F6 F7 F8 E R T Y D F G 27 & H 8 *> ( 9 F9 F10 0 0 P J K L F