Question 1: (answe a and b)

question 2: (answer a, b, c, d, & e)

question 3: (answer a and b)

question 4:

Your company has two divisions: One division sells software and the other division sells computers through a direct sales channel, primarily taking orders over the internet. You have decided that Dell Computer is very similar to your computer division, in terms of both risk and financing. You go online and find the following information: Dell's beta is 1.23, the risk-free rate is 4.1%, its market value of equity is $65.3 billion, and it has $700 million worth of debt with a yield to maturity of 5,9%. Your tax rate is 40% and you use a market risk premium of 5.4% in your WACC estimates. a. What is an estimate of the WACC for your computer sales division? b. If your overall company WACC is 11.6% and the computer sales division represents 39% of the value of your firm, what is an estimate of the WACC for your software division? Note: Assume that the firm will always be able to utilize its full interest tax shield. Growth Company's current share price is $20.05, and it is expected to pay a $1.20 dividend per share next year. After that, the firm's dividends are expected to grow at a rate of 4.2% per year. a. What is an estimate of Growth Company's cost of equity? b. Growth Company also has preferred stock outstanding that pays a $2.05 per share fixed dividend. If this stock is currently priced at $28.25, what is Growth Company's cost of preferred stock? c. Growth Company has existing debt issued three years ago with a coupon rate of 6.4%. The firm just issued new debt at par with a coupon rate of 6.7%. What is Growth Company's cost of debt? d. Growth Company has 5.5 million common shares outstanding and 1.3 million preferred shares outstanding, and its equity has a total book value of $49.9 million. Its liabilities have a market value of $19.7 million. If Growth Company's common and preferred shares are priced at $20.05 and $28.25, respectively, what is the market value of Growth Company's assets? e. Growth Company faces a 38% tax rate. Given the information in parts a through d and your answers to those problems, what is Growth Company's WACC? Note: Assume that the firm will always be able to utilize its full interest tax shield. Mackenzie Company has a price of $34 and will issue a dividend of $2.00 next year. It has a beta of 1.3, the risk-free rate is 5.9%, and the market risk premium is estimated to be 4.9%. a. Estimate the equity cost of capital for Mackenzie. b. Under the CDGM, at what rate do you need to expect Mackenzie's dividends to grow to get the same equity cost of capital as in part (a)? High Growth Company has a stock price of $19. The firm will pay a dividend next year of $1.09, and its dividend is expected to grow at a rate of 4.3% per year thereafter. What is your estimate of HighGrowth's cost of equity capital? The required return (cost of capital) of levered equity is 1%. (Round to one decimal place.)