Question: please answer all questions (1, 4, 5, 7, 9, 16) with short explanations and final answers. thank you. Will give an upvote too. 1. Calculating





1. Calculating Cost of Equity (LO2) The Rollag Co. just issued a dividend of $2.75 per share on its common stock. The company is expected to maintain a constant 5.8% growth rate in its dividends indefinitely. If the stock sells for $59 a share, what is the company's cost of equity? 4. Estimating the DCF Growth Rate (LO2) Suppose Whitney Ltd, just issued a dividend of $2.08 per share on its common stock. The company paid dividends of $1.71,$1.82,$1.93, and $1.99 per share in the last four years. If the stock currently sells for $45, what is your best estimate of the company's cost of equity capital using the arithmetic average growth rate in dividends? What if you use the geometric average growth rate? 5. Calculating Cost of Preferred Stock (LO2) Coaldale Bank has an issue of preferred stock with a $3.75 stated dividend that just sold for $87 per share. What is the bank's cost of preferred stock? 7. Calculating Cost of Debt (LO3) Pearce's Cricket Farm issued a 30-year, 7% semiannual bond 3 years ago. The bon currently sells for 93% of its face value. The company's tax rate is 35%. Assume the par value of the bond is $1,000 a. What is the pre-tax cost of debt? b. What is the after-tax cost of debt? c. Which is more relevant, the pre-tax or the after-tax cost of debt? Why? 9. Calculating WACC (LO4) Peacock Corporation has a target capital structure of 70% common stock, 5% preferred stock, and 25% debt. Its cost of equity is 11%, the cost of preferred stock is 5%, and the cost of debt is 7%. The relevant tax rate is 35%. a. What is Peacock's WACC? b. The company president has approached you about Peacock's capital structure. He wants to know why the company doesn't use more preferred stock financing because it costs less than debt. What would you tell the president? 16. Finding the WACC (LO4) Raymond Mining Corporation has 8.5 million shares of common stock outstanding. 250,000 shares of 5% preferred stock outstanding, and 135,0007.5% semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $34 per share and has a beta of 1.25 , the preferred stock currently sells for $91 per share, and the bonds have 15 years to maturity and sell for 114% of par. The market risk premium is 7.5%, T-bills are yielding 4%, and the company's tax rate is 35%. a. What is the firm's market value capital structure? b. If Raymond Mining is evaluating a new investment project that has the same risk as the firm's typical project, what rate should the firm use to discount the project's cash flows? 1. Calculating Cost of Equity (LO2) The Rollag Co. just issued a dividend of $2.75 per share on its common stock. The company is expected to maintain a constant 5.8% growth rate in its dividends indefinitely. If the stock sells for $59 a share, what is the company's cost of equity? 4. Estimating the DCF Growth Rate (LO2) Suppose Whitney Ltd, just issued a dividend of $2.08 per share on its common stock. The company paid dividends of $1.71,$1.82,$1.93, and $1.99 per share in the last four years. If the stock currently sells for $45, what is your best estimate of the company's cost of equity capital using the arithmetic average growth rate in dividends? What if you use the geometric average growth rate? 5. Calculating Cost of Preferred Stock (LO2) Coaldale Bank has an issue of preferred stock with a $3.75 stated dividend that just sold for $87 per share. What is the bank's cost of preferred stock? 7. Calculating Cost of Debt (LO3) Pearce's Cricket Farm issued a 30-year, 7% semiannual bond 3 years ago. The bon currently sells for 93% of its face value. The company's tax rate is 35%. Assume the par value of the bond is $1,000 a. What is the pre-tax cost of debt? b. What is the after-tax cost of debt? c. Which is more relevant, the pre-tax or the after-tax cost of debt? Why? 9. Calculating WACC (LO4) Peacock Corporation has a target capital structure of 70% common stock, 5% preferred stock, and 25% debt. Its cost of equity is 11%, the cost of preferred stock is 5%, and the cost of debt is 7%. The relevant tax rate is 35%. a. What is Peacock's WACC? b. The company president has approached you about Peacock's capital structure. He wants to know why the company doesn't use more preferred stock financing because it costs less than debt. What would you tell the president? 16. Finding the WACC (LO4) Raymond Mining Corporation has 8.5 million shares of common stock outstanding. 250,000 shares of 5% preferred stock outstanding, and 135,0007.5% semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $34 per share and has a beta of 1.25 , the preferred stock currently sells for $91 per share, and the bonds have 15 years to maturity and sell for 114% of par. The market risk premium is 7.5%, T-bills are yielding 4%, and the company's tax rate is 35%. a. What is the firm's market value capital structure? b. If Raymond Mining is evaluating a new investment project that has the same risk as the firm's typical project, what rate should the firm use to discount the project's cash flows
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