1. (Related to Checkpoint 14.2 and Checkpoint 14.3) (Cost of common equity)The common stock for the Hetterbrand Corporation sells for $59.27, and the last dividend paid was $2.18. Five years ago the firm paid $1.85 per share, and dividends are expected to grow at the same annual rate in the future as they did over the past five years.

a. What is the estimated cost of common equity to the firm using the dividend growth model?

b. Hetterbrand's CFO has asked his financial analyst to estimate the firm's cost of common equity using the CAPM as a way of validating the earlier calculations. The risk-free rate of interest is currently 4.3 percent, the market risk premium is estimated to be 4.7 percent, and Hetterbrand's beta is 0.71. What is your estimate of the firm's cost of common equity using this method?

a.The estimated cost of common equity to the firm using the dividend growth model is enter your response here%. (Round to two decimal places.)

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b.Your estimate of the firm's cost of common equity using the CAPM is enter your response here%. (Round to two decimal places.)

2. (Cost of debt)Sincere Stationery Corporation needs to raise

$476,000 to improve its manufacturing plant. It has decided to issue a $1,000 par value bond with an annual coupon rate of 10.5 percent with interest paid semiannually and a 15-year maturity. Investors require a rate of return of 7.1 percent.

a. Compute the market value of the bonds.

b.How many bonds will the firm have to issue to receive the needed funds?

c.What is the firm's after-tax cost of debt if the firm's tax rate is 34 percent?

a.The market value of the bonds is $enter your response here. (Round to the nearest cent.)

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b.The number of bonds that the company needs to sell is enter your response here bonds. (Round up to the nearest integer.)

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c.The firm's after-tax cost of debt is enter your response here%. (Round to two decimal places.)

3. (Weighted average cost of capital) In the spring of last year, Tempe Steel learned that the firm would need to re-evaluate the company's weighted average cost of capital following a significant issue of debt. The firm now has financed 49 percent of its assets using debt and 51 pecent using equity. Calculate the firm's weighted average cost of capital where the firm's borrowing rate on debt is 8.2 percent, it faces a 35 percent tax rate, and the common stockholders require a 20.3 percent rate of return.

Tempe Steel's weighted average cost of capital is %. (Round to three decimal places.)