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Could someone please help me with these finance practice problems by solving them with Excel (and showing work). For the T/F questions, please explain why.
Could someone please help me with these finance practice problems by solving them with Excel (and showing work). For the T/F questions, please explain why.
1. ( T or F ) As the company's risk rises, its cost of capital declines. 2. ( T or F ) Since interest payment is tax-deductible, the after-tax cost of debt is, in general, higher than the before-tax cost of debt. (The following information applies to the next five questions) Ink Inc. has decided that the capital it is raising will consist of 10% preferred stock, 20% common stock, 30% retained earnings, and 40% debt. Ink has outstanding 20 year semi-annual, 6% coupon bonds selling for $950. The par value of the bonds is $1,000. Ink's common stock sells for $50 per share. Ink expects that it will pay a $2 dividend next year and that its dividend will grow at 5% a year. If Ink sells new common it must pay a $5 per share flotation fee. Ink's preferred stock currently sells for $54, and its annual dividend is $5 per share. If Ink were to sell new preferred stock, it would pay $3 per share as flotation cost. Ink's tax rate is 40%. 3. What is Ink's after tax cost of debt capital? 4. What is Ink's cost of preferred stock capital? 5. What is Ink's cost of common stock? 6. What is Ink's cost of retained earnings? 7. What is Ink's cost of capital? (The following information applies to next three questions.) A firm has $2 million of capital needs. The firm has noticed that the current yield to maturity on its bonds is 9.5%, and its stock beta is 1.2. Currently, the expected return on the S&P 500 stocks is 12%, and the 90-day T-bill rate is 5%. The firm's target capital structure is 40% debt and 60% equity. The firm's marginal tax rate is 28%. 8. What is the cost of debt? 9. What is the cost of equity? 10. What is the cost of capital for the $2 millionStep by Step Solution
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