Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

12a) The muggle investment committee at Gringotts bank is evaluating the stock of several companies to add to their portfolio. The common stock of one

12a) The muggle investment committee at Gringotts bank is evaluating the stock of several companies to add to their portfolio. The common stock of one of the companies is currently priced at $87.06 a share. The company has just paid $3.27 per share as its annual dividend. The dividends have been increasing by 10% percent annually and are expected to continue doing the same. What is this firm's cost of equity? (Answer as a percentage and round to 2 decimals.)

Select one:

a. 16.46 %

b. 11.97 %

c. 14.13 %

d. 17.32 %

e. 11.71 %

12b) The board of directors for Avery Brothers Inc. has decided to set a target capital structure that consists of 57 % common stock, 14.5 % preferred stock, and 28.5 % debt. The firm has a current cost of equity of 13.5 %, a cost of preferred stock of 9.6 %, and a pre-tax cost of debt of 6.5 %. If the firm faces a marginal tax rate of 23 %, what is their WACC?

Select one:

a. 13.47 %

b. 8.24 %

c. 10.51 %

d. 9.39 %

e. 13.50 %

12c) Which of the following is true concerning the capital structure weights that we use to calculate the weighted average cost of capital?

Select one:

a. depend on the firms tax rate

b. are based on the market value of the firms debt and equity securities

c. remain constant over time unless the firm issues new securities

d. are computed using the book value of the long-term debt and the book value of equity

e. are based on the book values of total debt and total equity

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Management For Public Health And Not-for-Profit Organizations

Authors: Steven A. Finkler, Daniel L. Smith, Thad D. Calabrese, Robert M. Purtell

7th Edition

1071835335, 978-1071835333

More Books

Students also viewed these Finance questions