Click here to read the eBook: Cost of Preferred Stock, rp COST OF PREFERRED STOCK Torch Industries can issue perpetual preferred stock at a price of $63.50 a share. The stock would pay a constant annual dividend of $7.00 a share. What is the company's cost of preferred stock, rp? Round your answer to two decimal places. % Grade It Now Save & Continue Continue without saving Click here to read the eBook: The Cost of Retained Earnings, rs COST OF COMMON EQUITY Pearson Motors has a target capital structure of 35% debt and 65% common equity, with no preferred stock. The yield to maturity on the company's outstanding bonds is 11%, and its tax rate is 40%. Pearson's CFO estimates that the company's WACC is 13.10%. What is Pearson's cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places. % Grade It Now Save & Continue Continue without saving Click here to read the eBook: Cost of New Common Stock, re Problem Walk-Through COST OF EQUITY WITH AND WITHOUT FLOTATION Jarett & Sons's common stock currently trades at $40.00 a share. It is expected to pay an annual dividend of $3.00 a share at the end of the year (D1 $3.00), and the constant growth rate is 4% a year. = a. What is the company's cost of common equity if all of its equity comes from retained earnings? Round your answer to two decimal places. Do not round your intermediate calculations. % b. If the company issued new stock, it would incur a 20% flotation cost. What would be the cost of equity from new stock? Round your answer to two decimal places. Do not round your intermediate calculations. % PROJECT SELECTION Midwest Water Works estimates that its WACC is 10.57%. The company is considering the following capital budgeting projects. Assume that each of these projects is just as risky as the firm's existing assets and that the firm may accept all the projects or only some of them. Which set of projects should be accepted? Project Size Rate of Return A $1 million 12.0% -Select- B 2 million 11.5 -Select- C 2 million 11.2 -Select- D 2 million 11.0 -Select- E 1 million 10.7 -Select- F 1 million 10.3 -Select- G 1 million 10.2 -Select- COST OF COMMON EQUITY The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow 6% per year. Callahan's common stock currently sells for $24.75 per share; its last dividend was $2.00; and it will pay a $2.12 dividend at the end of the current year. a. Using the DCF approach, what is its cost of common equity? Round your answer to two decimal places. Do not round your intermediate calculations. % b. If the firm's beta is 0.70, the risk-free rate is 8%, and the average return on the market is 13%, what will be the firm's cost of common equity using the CAPM approach? Round your answer to two decimal places. % c. If the firm's bonds earn a return of 11%, based on the bond-yield-plus-risk-premium approach, what will be rs? Use the midpoint of the risk premium range discussed in Section 10-5 in your calculations. Round your answer to two decimal places. % d. If you have equal confidence in the inputs used for the three approaches, what is your estimate of Callahan's cost of common equity? Round your answer to two decimal places. Do not round your intermediate calculations. % the BOOK. Te COST OF COMMON EQUITY WITH AND WITHOUT FLOTATION The Evanec Company's next expected dividend, D1, is $3.70; its growth rate is 4%; and its common stock now sells for $34. New stock (external equity) can be sold to net $32.30 per share. a. What is Evanec's cost of retained earnings, rs? Round your answer to two decimal places. Do not round your intermediate calculations. % rs = b. What is Evanec's percentage flotation cost, F? Round your answer to two decimal places. F = % c. What is Evanec's cost of new common stock, re? Round your answer to two decimal places. Do not round your intermediate calculations. re = % Grade It Now Save & Continue COST OF COMMON EQUITY AND WACC Palencia Paints Corporation has a target capital structure of 35% debt and 65% common equity, with no preferred stock. Its before-tax cost of debt is 12%, and its marginal tax rate is 40%. The current stock price is Po = $21.00. The last dividend was Do = $2.50, and it is expected to grow at a 5% constant rate. What is its cost of common equity and its WACC? Round your answers to two decimal places. Do not round your intermediate calculations. a. rs = % b. WACC = % Click here to read the eBook: Basic Definitions WACC The Pawlson Company's year-end balance sheet is shown below. Its cost of common equity is 18%, its before-tax cost of debt is 11%, and its marginal tax rate is 40%. Assume that the firm's long-term debt sells at par value. The firm's total debt, which is the sum of the company's short-term debt and long- term debt, equals $1,123. The firm has 576 shares of common stock outstanding that sell for $4.00 per share. Assets Liabilities And Equity Cash $ 120 Accounts payable and accruals $ 10 Accounts receivable 240 Short-term debt 43 Inventories 360 Long-term debt 1,080 Plant and equipment, net 2,160 Common equity 1,747 Total assets $2,880 Total liabilities and equity $2,880 Calculate Pawlson's WACC using market-value weights. Round your answer to two decimal places. Do not round your intermediate calculations. % IICK eBook: Basic ons WACC Olsen Outfitters Inc. believes that its optimal capital structure consists of 60% common equity and 40% debt, and its tax rate is 40%. Olsen must raise additional capital to fund its upcoming expansion. The firm will have $3 million of retained earnings with a cost of rs = 15%. New common stock in an amount up to $7 million would have a cost of re = 19%. Furthermore, Olsen can raise up to $4 million of debt at an interest rate of rd = 9% and an additional $3 million of debt at rd = 12%. The CFO estimates that a proposed expansion would require an investment of $5.6 million. What is the WACC for the last dollar raised to complete the expansion? Round your answer to two decimal places. % Grade It Now Save & Continue Continue without saving AFTER-TAX COST OF DEBT The Holmes Company's currently outstanding bonds have a 7% coupon and a 13% yield to maturity. Holmes believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 35%, what is Holmes's after-tax cost of debt? Round your answer to two decimal places. %