Chapter 9 Cost of Capital Complete in Excel. Please - no rounding.

1. Calculate the after-tax cost of the debt under each of the following conditions:
   1. r_d of 14%, tax rate of 15%
   2. r_d of 14%, tax rate of 30%
   3. r_d of 14%, tax rate of 45%

2. LL Inc.s currently outstanding 15% coupon bonds have a yield to maturity of 7.5%. LL believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 28%, what is LLs after tax cost of debt?

3. Burnwood Tech plans to issue some $115 par preferred stock with a 15% dividend. A similar stock is selling on the market for $137. Burnwood must pay flotation costs of 6% of the issue price. What is the cost of the preferred stock?

4. Summerdahi Resorts common stock is currently trading at $37.15 a share. The stock is expected to pay a dividend of $2.50 a share at the end of the year (D₁ = $2.50), and the dividend is expected to grow at a constant rate of 8.25% a year. What is its cost of common equity?

5. Booher Book Stores has a beta of 1.30. The yield on a 3-month T-bill is 4.5%. The market risk premium is 7.5% and the return on an average stock in the market last year was 12%. What is the estimated cost of common equity using CAPM?

6. Shi Import Exports balance sheet shows $250 million in debt, $50 million in preferred stock, and $300 million in total common equity. Shis tax rate is 23%, r_d = 8.5%, r_p = 9.87%, and r_s = 15.5%. If Shi has a target capital structure of 40% debt, 5% preferred stock and 55% common stock, what it its WACC?

7. David Ortiz Motors has a target capital structure of 20% debt and 80% equity. The yield to maturity on the companys outstanding bonds is 5.7%, and the companys tax rate is 23%. Ortizs CFO has calculated the companys WACC as 10.45%. What is the companys cost of equity capital?

8. On January 1, the total market value of the Tysseland Company was $60 million. During the year, the company plans to raise and invest $30 million in new projects. The firms present market value capital structure, shown here, is considered to be optimal. There is no short-term debt.

Debt $30,000,000

Common equity 30,000,000

Total capital $60,000,000

New bonds will have an 8% coupon rate, and they will be sold at par. Common stock is currently selling at $30 a share. The stock holders required rate of return is estimated to be 12%, consisting of a dividend yield of 4% and an expected constant growth rate of 8%. The next expected dividend is $1.20, so the dividend yield is $1.20/$30 = 4%. The marginal tax rate is 40%.

1. In order to maintain the present capital structure, how much of the new investment must be financed by common equity?
2. Assuming there is sufficient cash flow for Tysseland to maintain its target capital structure without issuing additional shares of equity, what is its WACC?
3. Suppose now that there is not enough internal cash flow and the firm must issue new shares of stock. Qualitatively speaking, what will happen to the WACC? No numbers are required to answer this question.