Estimating Cost of Debt Capital

Assume that a companys financial statements report that its average outstanding debt totals $1.6 billion, and its total interest expense equals $80 million. If its tax rate is 21%, compute its cost of debt capital.

Round answer to two decimal places (ex: 0.02345 = 2.35%). Answer %

Good Investments Company forecasts a $2.44 dividend for 2017, $2.62 dividend for 2018 and a $2.77 dividend for 2019 for Mountain Vacations Corporation. For all years after 2019, Good Investments Company forecasts that Mountain Vacations will pay a $2.94 dividend. Using the dividend discount valuation model determine the intrinsic value of Mountain Vacations Corporation, assuming the companys cost of equity capital is 7%.

Select one:

a. $41.11

b. $38.87

c. $34.26

d. $27.48

Good Investments Company forecasts a $2.44 dividend for 2017, $2.62 dividend for 2018 and a $2.77 dividend for 2019 for Mountain Vacations Corporation. For year 2020, Good Investments Company forecasts that Mountain Vacations will pay a $2.94 dividend and that dividend will continue to grow by 4% each year. Using the dividend discount valuation model determine the intrinsic value of Mountain Vacations Corporation, assuming the companys cost of equity capital is 7%.

Select one:

a. $86.82

b. $42.39

c. $79.46

d. $77.75

Brent Company currently pays a $1.00 dividend and its current stock price is $37.72 . Assuming the companys cost of equity capital is 10% use the dividend discount valuation model to estimate the companys growth rate.

Select one:

a. 7.35%

b. 12.65%

c. 2.65%

d. 2.84%