#8

You have obtained the following data: D₀ = $0.90; P₀ = $27.50; and g_L = 7.00% (constant). Based on the dividend growth model, what is the cost of common from reinvested earnings? (answer: 10:50)

6. Orono Corp.'s sales last year were $435,000, its operating costs were $362,500, and its interest charges were $12,500. What was the firm's times interest earned (TIE) ratio? answer: 5.80) 7. Rappaport Corp.'s sales last year were $320,000, and its net income after taxes was $23,000. What was its profit margin on sales? answer: 7.19) 8. You have obtained the following data: Do = $0.90; Po = $27.50; and g = 7.00% (constant). Based on the dividend growth model, what is the cost of common from reinvested earnings? answer: 10:50) 9. The president and CFO of Ledd Housing Inc. are having a disagreement about whether to use market value or book value weights in calculating the WACC. Ledd Housing Inc. balance sheet shows a total of noncallable $45 million long-term debt with a coupon rate of 7.00% and a yield to maturity of 6.00%. This debt currently has a market value of $50 million. The company has 10 million shares of common stock, and the book value of the common equity (common stock plus retained earnings) is $65 million. The current stock price is $22.50 per share: stockholders' required return is, is 14.00%; and the firm's tax rate is 40%. The CFO thinks the WACC should be based on market value weights, but the president thinks book weights are more appropriate. What is the difference between these two WACCs? answer: 2.36%)