AZ Products has 140,000 shares of common stock outstanding at a market price of $27 a share. Next year's annual dividend is expected to be $1.43 a share and the dividend growth rate is 2 percent. The company also has 2,500 bonds outstanding with a face value of $1,000 per bond. The bonds have a pretax yield of 7.35 percent and sell at 98.2 percent of face value. The company's tax rate is 21 percent. What is the weighted average cost of capital?

8.41 percent

6.71 percent

7.52 percent

6.58 percent

6.59 percent

2

21

Kelso's has a debt-equity ratio of .62 and a tax rate of 21 percent. The firm does not issue preferred stock. The cost of equity is 16.3 percent and the aftertax cost of debt is 5.21 percent. What is the weighted average cost of capital?

10.96 percent

11.67 percent

12.06 percent

11.38 percent

11.57 percent

3

31

Panelli's is analyzing a project with an initial cost of $139,000 and cash inflows of $74,000 in Year 1 and $86,000 in Year 2. This project is an extension of current operations and thus is equally as risky as the current company. The company uses only debt and common stock to finance its operations and maintains a debt-equity ratio of .39 The aftertax cost of debt is 5.1 percent, the cost of equity is 13.2 percent, and the tax rate is 21 percent. What is the projected net present value of this project?

$411

$1,109

$1,807

$938

$2,399

4

41

Sister Pools sells outdoor swimming pools and currently has an aftertax cost of capital of 10.6 percent. Al's Construction builds and sells water features and fountains and has an aftertax cost of capital of 10.2 percent. Sister Pools is considering building and selling its own water features and fountains. The initial cash outlay for this project would be $75,000. The expected net cash inflows are $18,000 a year for seven years. What is the net present value of the Sister Pools project?

$4,608

$12,057

$2,262

$11,508

$5,220

5

51

Deep Hollow Markets has a target capital structure of 35 percent debt, 5 percent preferred stock, and 60 percent common stock. The flotation costs are 8.6 percent for common stock, 6.2 percent for preferred stock, and 3.8 percent for debt. The corporate tax rate is 21 percent. What is the weighted average flotation cost?

7.17 percent

6.48 percent

6.62 percent

6.80 percent

7.11 percent

6

61

You are evaluating a project that requires $324,000 in external financing. The flotation cost of equity is 8.4 percent and the flotation cost of debt is 5.1 percent. What is the initial cost of the project including the flotation costs if you maintain a debt-equity ratio of .35?

$352,842

$349,021

$350,439

$355,551

$346,646

7

71

Bermuda Cruises issues only common stock and coupon bonds. The firm has a debtequity ratio of 1.37. The cost of equity is 13.3 percent and the pretax cost of debt is 7.5 percent. What is the capital structure weight of the firm's equity if the firm's tax rate is 40 percent?

.3941

.4937

.4672

.4219

.5781

8

81

The Two Dollar Store has a cost of equity of 10.8 percent, the YTM on the company's bonds is 5.4 percent, and the tax rate is 35 percent. If the company's debtequity ratio is .43, what is the weighted average cost of capital?

8.12%

7.44%

9.18%

5.70%

8.61%

9

91

Kountry Kitchenhas a cost of equity of 10.8 percent, a pretax cost of debt of 6.3 percent, and the tax rate is 35 percent. If the company's WACC is9.01 percent, what is its debtequity ratio?

.49

2.75

.36

1.33

.27

10

101

Take It All Away has a cost of equity of 10.54 percent, a pretax cost of debt of 5.27 percent, and a tax rate of 35 percent. The company's capital structure consists of 68 percent debt on a book value basis, but debt is 28 percent of the company's value on a market value basis. What is the company's WACC?

9.06%

8.55%

9.67%

12.09%

7.86%

11

111

Judy's Boutique just paid an annual dividend of $3.01 on its common stock. The firm increases its dividend by 3.70 percent annually. What is the company's cost of equity if the current stock price is $41.08 per share?

10.41%

11.30%

11.03%

11.70%

10.72%

12

121

Upton Umbrellas has a cost of equity of 10.9 percent, the YTM on the company's bonds is 5.6 percent, and the tax rate is 40 percent. The company's bonds sell for 94.1 percent of par. The debt has a book value of $390,000 and total assets have a book value of $946,000. If the market-to-book ratio is 2.56 times, what is the company's WACC?

4.91%

9.35%

7.90%

9.12%

7.71%