Question
1)Stock in Daenerys Industries has a beta of 1.16. The market risk premium is 8.5 percent, and T-bills are currently yielding 5 percent. The company's
1)Stock in Daenerys Industries has a beta of 1.16. The market risk premium is 8.5 percent, and T-bills are currently yielding 5 percent. The company's most recent dividend was $1.8 per share, and dividends are expected to grow at a 6 percent annual rate indefinitely. If the stock sells for $30 per share, what is your best estimate of the company's cost of equity?
2) Dinklage Corp. has 6 million shares of common stock outstanding. The current share price is $89, and the book value per share is $8. The company also has two bond issues outstanding. The first bond issue has a face value of $85 million, has a 6 percent coupon, and sells for 96 percent of par. The second issue has a face value of $60 million, has a 7 percent coupon, and sells for 109 percent of par. The first issue matures in 21 years, the second in 9 years. The most recent dividend was $6.1 and the dividend growth rate is 8 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 35 percent. What is the company's WACC?
3) Fama's Llamas has a weighted average cost of capital of 11 percent. The company's cost of equity is 16.5 percent, and its pretax cost of debt is 7.5 percent. The tax rate is 33 percent. What is the company's target debt-equity ratio?
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