Finance Homework

I need help with question # 3,6,and 7 on this PDF. Please help! I need ASAP. If you can do this I have more questions I need help with.

1. Award: 10.00 points The Absolute Zero Co. just issued a dividend of $2.50 per share on its common stock. The company is expected to maintain a constant 5.2 percent growth rate in its dividends indefinitely. If the stock sells for $50 a share, what is the company's cost of equity? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) 10.46 % Cost of equity Hints Hint #1 References Worksheet Learning Objective: 1401 How to determine a firms cost of equity capital. Difficulty: Basic Section: 14.2 The Cost of Equity 2. Award: 10.00 points Suppose Stark Ltd. just issued a dividend of $1.91 per share on its common stock. The company paid dividends of $1.60, $1.66, $1.73, and $1.84 per share in the last four years. If the stock currently sells for $45, what is your best estimate of the company's cost of equity capital using the arithmetic average growth rate in dividends? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Cost of equity 8.97 % What if you use the geometric average growth rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Cost of equity 8.94 % References Worksheet Learning Objective: 1401 How to determine a firms cost of equity capital. Difficulty: Basic Section: 14.2 The Cost of Equity 3. Award: 10.00 points Drogo, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 12 years to maturity that is quoted at 110 percent of face value. The issue makes semiannual payments and has an embedded cost of 6 percent annually. What is the company's pretax cost of debt? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Pretax cost of debt % If the tax rate is 35 percent, what is the aftertax cost of debt? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Aftertax cost of debt % Hints Hint #1 References Worksheet Learning Objective: 1402 How to determine a firms cost of debt. Difficulty: Basic Section: 14.3 The Costs of Debt and Preferred Stock Section: 14.4 The Weighted Average Cost of Capital 4. Award: 10.00 points Mullineaux Corporation has a target capital structure of 70 percent common stock, 10 percent preferred stock, and 20 percent debt. Its cost of equity is 12 percent, the cost of preferred stock is 6 percent, and the pretax cost of debt is 8 percent. The relevant tax rate is 40 percent. a. What is the company's WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) 9.96 % WACC b. What is the aftertax cost of debt? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) 4.8 % Aftertax cost of debt Hints Hint #1 References Worksheet Learning Objective: 1403 How to determine a firms overall cost of capital and how to use it to value a company. Difficulty: Basic Learning Objective: 1404 How to correctly include flotation costs in capital budgeting projects. 5. Award: 10.00 points Lannister Manufacturing has a target debtequity ratio of .70. Its cost of equity is 14 percent, and its cost of debt is 7 percent. If the tax rate is 38 percent, what is the company's WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) WACC 10.02 % Hints Hint #1 References Worksheet Learning Objective: 1403 How to determine a firms overall cost of capital and how to use it to value a company. Difficulty: Basic Section: 14.4 The Weighted Average Cost of Capital 6. Award: 10.00 points You are given the following information for Watson Power Co. Assume the company's tax rate is 30 percent. Debt: 6,000 6.1 percent coupon bonds outstanding, $1,000 par value, 15 years to maturity, selling for 104 percent of par the bonds make semiannual payments. Common stock: 330,000 shares outstanding, selling for $51 per share the beta is 1.07. Preferred stock: 11,000 shares of 4 percent preferred stock outstanding, currently selling for $71 per share. Market: 6 percent market risk premium and 4.1 percent riskfree rate. What is the company's WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) WACC Hints Hint #1 References % Worksheet Learning Objective: 1403 How to determine a firms overall cost of capital and how to use it to value a company. Difficulty: Basic Section: 14.4 The Weighted Average Cost of Capital 7. Award: 10.00 points Suppose your company needs $18 million to build a new assembly line. Your target debtequity ratio is .7. The flotation cost for new equity is 7 percent, but the flotation cost for debt is only 4 percent. Your boss has decided to fund the project by borrowing money because the flotation costs are lower and the needed funds are relatively small. a. What is your company's weighted average flotation cost, assuming all equity is raised externally? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Flotation cost % b. What is the true cost of building the new assembly line after taking flotation costs into account? (Enter your answer in dollars, not millions of dollars, e.g. 1,234,567. Do not round intermediate calculations and round your answer to the nearest whole dollar amount, e.g., 32.) Amount raised $ References Worksheet Learning Objective: 1404 How to correctly include flotation costs in capital budgeting projects. Difficulty: Basic Section: 14.6 Company Valuation with the WACC The Absolute Zero Co. just issued a dividend of $2.50 per share on its common stock. The company is expected to maintain a constant 5.2 percent growth rate in its dividends indefinitely. If the stock sells for $50 a share, what is the company's cost of equity? cost of equity =D1/Price +G D1 =2.50*(1+5.2%) cost of equity 2.63 10.46% Suppose Stark Ltd. just issued a dividend of $1.91 per share on its common stock. The company paid dividends of $1.60, $1.66, $1.73, and $1.84 per share in the last four years. If the stock currently sells for $45, what is your best estimate of the company's cost of equity capital using the arithmetic average growth rate in dividends? g 1 = ($1.66 - 1.60/$1.60 = g 2 = ($1.73- 1.66)/$1.66 g 3 = ($1.84-1.73)/$1.73 g 4 = ($1.91-1.84)/$1.84 3.75% 4.22% 6.36% 3.80% the average arithmetic growth rate cost of equity =1.91*(1+4.53%)/45+4.53% 4.53% 8.97% What if you use the geometric average growth rate? g=$1.91= $1.60(1 + g)^4 cost of equitye =1.91*(1+4.527%)/45+4.53%. 4.527% 8.96% Drogo, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 12 years to maturity that is quoted at 110 percent of face value. The issue makes semiannual payments and has an embedded cost of 6 percent annually What is the company's pretax cost of debt? If the tax rate is 35 percent, what is the aftertax cost of debt? 4.89% 3.18% Mullineaux Corporation has a target capital structure of 70 percent common stock, 10 percent preferred stock, and 20 percent debt. Its cost of equity is 12 percent, the cost of preferred stock is 6 percent, and the pretax cost of debt is 8 percent. The relevant tax rate is 40 percent. Equity preferred stock 12.0% 6.0% Debt 4.8% WACC What is the aftertax cost of debt? 4.8% Lannister Manufacturing has a target debtequity ratio of .70. Its cost of equity is 14 percent, and its cost of debt is 7 percent. If the tax rate is 38 percent, what is the company's WACC? Cost of Capital cost of debt cost of equity 4% 14% WACC You are given the following information for Watson Power Co. Assume the company's tax rate is 30 percent. Debt: cost of equity preferred stock WACC Cost of Capital 3.99% 10.52% 5.63% 8.65% Suppose your company needs $18 million to build a new assembly line. Your target debtequity ratio is .7. The flotation cost for new equity is 7 percent, but the flotation cost for debt is only 4 percent. Your boss has decided to fund the project by borrowing money because the flotation costs are lower and the needed funds are relatively small. a. What is your company's weighted average flotation cost, assuming all equity is raised externally? flotation cost for new equity flotation cost for debt 7% 4% weighted average flotation cost What is the true cost of building the new assembly line after taking flotation costs into account? Amount raised(1 - 0.0524) = $18,000,000 true cost of building 18,994,413 70% 10% 8.40% 0.60% 20% 0.96% 9.96% Weight Weight*Cost of debt 0.41 0.018 0.59 0.082 10.02% MV Weight Weight*Cost of debt 6240000 26.16% 1.04% 16830000 70.56% 7.42% 781000 3.27% 0.18% 23851000 100.00% 8.65% Weight Weight*Cost of debt 0.41 2.9% 0.59 2.4% verage flotation cost 5.24% The Absolute Zero Co. just issued a dividend of $2.50 per share on its common stock. The company is expected to maintain a constant 5.2 percent growth rate in its dividends indefinitely. If the stock sells for $50 a share, what is the company's cost of equity? cost of equity =D1/Price +G D1 =2.50*(1+5.2%) cost of equity 2.63 10.46% Suppose Stark Ltd. just issued a dividend of $1.91 per share on its common stock. The company paid dividends of $1.60, $1.66, $1.73, and $1.84 per share in the last four years. If the stock currently sells for $45, what is your best estimate of the company's cost of equity capital using the arithmetic average growth rate in dividends? g 1 = ($1.66 - 1.60/$1.60 = g 2 = ($1.73- 1.66)/$1.66 g 3 = ($1.84-1.73)/$1.73 g 4 = ($1.91-1.84)/$1.84 3.75% 4.22% 6.36% 3.80% the average arithmetic growth rate cost of equity =1.91*(1+4.53%)/45+4.53% 4.53% 8.97% What if you use the geometric average growth rate? g=$1.91= $1.60(1 + g)^4 cost of equitye =1.91*(1+4.527%)/45+4.53%. 4.527% 8.96% Drogo, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 12 years to maturity that is quoted at 110 percent of face value. The issue makes semiannual payments and has an embedded cost of 6 percent annually What is the company's pretax cost of debt? If the tax rate is 35 percent, what is the aftertax cost of debt? 4.89% 3.18% Mullineaux Corporation has a target capital structure of 70 percent common stock, 10 percent preferred stock, and 20 percent debt. Its cost of equity is 12 percent, the cost of preferred stock is 6 percent, and the pretax cost of debt is 8 percent. The relevant tax rate is 40 percent. Equity 12.0% preferred stock Debt 6.0% 4.8% WACC What is the aftertax cost of debt? 4.8% Lannister Manufacturing has a target debtequity ratio of .70. Its cost of equity is 14 percent, and its cost of debt is 7 percent. If the tax rate is 38 percent, what is the company's WACC? Cost of Capital cost of debt cost of equity 4% 14% WACC You are given the following information for Watson Power Co. Assume the company's tax rate is 30 percent. Debt: cost of equity preferred stock WACC Cost of Capital 3.99% 10.52% 5.63% 8.65% Suppose your company needs $18 million to build a new assembly line. Your target debtequity ratio is .7. The flotation cost for new equity is 7 percent, but the flotation cost for debt is only 4 percent. Your boss has decided to fund the project by borrowing money because the flotation costs are lower and the needed funds are relatively small. a. What is your company's weighted average flotation cost, assuming all equity is raised externally? flotation cost for new equity flotation cost for debt 7% 4% weighted average flotation cost What is the true cost of building the new assembly line after taking flotation costs into account? Amount raised(1 - 0.0576) = $18,000,000 true cost of building 19,101,124 70% 8.40% 10% 20% 0.60% 0.96% 9.96% Weight Weight*Cost of debt 0.41 0.018 0.59 0.082 10.02% MV Weight Weight*Cost of debt 6240000 26.16% 1.04% 16830000 70.56% 7.42% 781000 3.27% 0.18% 23851000 100.00% 8.65% Weight Weight*Cost of debt 0.59 4.1% 0.41 1.6% verage flotation cost 5.76% The Absolute Zero Co. just issued a dividend of $2.50 per share on its common stock. The company is expected to maintain a constant 5.2 percent growth rate in its dividends indefinitely. If the stock sells for $50 a share, what is the company's cost of equity? cost of equity =D1/Price +G D1 =2.50*(1+5.2%) cost of equity 2.63 10.46% Suppose Stark Ltd. just issued a dividend of $1.91 per share on its common stock. The company paid dividends of $1.60, $1.66, $1.73, and $1.84 per share in the last four years. If the stock currently sells for $45, what is your best estimate of the company's cost of equity capital using the arithmetic average growth rate in dividends? g 1 = ($1.66 - 1.60/$1.60 = g 2 = ($1.73- 1.66)/$1.66 g 3 = ($1.84-1.73)/$1.73 g 4 = ($1.91-1.84)/$1.84 3.75% 4.22% 6.36% 3.80% the average arithmetic growth rate cost of equity =1.91*(1+4.53%)/45+4.53% 4.53% 8.97% What if you use the geometric average growth rate? g=$1.91= $1.60(1 + g)^4 cost of equitye =1.91*(1+4.527%)/45+4.53%. 4.527% 8.96% Drogo, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 12 years to maturity that is quoted at 110 percent of face value. The issue makes semiannual payments and has an embedded cost of 6 percent annually What is the company's pretax cost of debt? If the tax rate is 35 percent, what is the aftertax cost of debt? 4.89% 3.18% Mullineaux Corporation has a target capital structure of 70 percent common stock, 10 percent preferred stock, and 20 percent debt. Its cost of equity is 12 percent, the cost of preferred stock is 6 percent, and the pretax cost of debt is 8 percent. The relevant tax rate is 40 percent. Equity 12.0% preferred stock Debt 6.0% 4.8% WACC What is the aftertax cost of debt? 4.8% Lannister Manufacturing has a target debtequity ratio of .70. Its cost of equity is 14 percent, and its cost of debt is 7 percent. If the tax rate is 38 percent, what is the company's WACC? Cost of Capital cost of debt cost of equity 4% 14% WACC You are given the following information for Watson Power Co. Assume the company's tax rate is 30 percent. Debt: cost of equity preferred stock WACC Cost of Capital 3.99% 10.52% 5.63% 8.65% Suppose your company needs $18 million to build a new assembly line. Your target debtequity ratio is .7. The flotation cost for new equity is 7 percent, but the flotation cost for debt is only 4 percent. Your boss has decided to fund the project by borrowing money because the flotation costs are lower and the needed funds are relatively small. a. What is your company's weighted average flotation cost, assuming all equity is raised externally? flotation cost for new equity flotation cost for debt 7% 4% weighted average flotation cost What is the true cost of building the new assembly line after taking flotation costs into account? Amount raised(1 - 0.0576) = $18,000,000 true cost of building 19,101,124 70% 8.40% 10% 20% 0.60% 0.96% 9.96% Weight Weight*Cost of debt 0.41 0.018 0.59 0.082 10.02% MV Weight Weight*Cost of debt 6240000 26.16% 1.04% 16830000 70.56% 7.42% 781000 3.27% 0.18% 23851000 100.00% 8.65% Weight Weight*Cost of debt 0.59 4.1% 0.41 1.6% verage flotation cost 5.76% The Absolute Zero Co. just issued a dividend of $2.50 per share on its common stock. The company is expected to maintain a constant 5.2 percent growth rate in its dividends indefinitely. If the stock sells for $50 a share, what is the company's cost of equity? cost of equity =D1/Price +G D1 =2.50*(1+5.2%) cost of equity 2.63 10.46% Suppose Stark Ltd. just issued a dividend of $1.91 per share on its common stock. The company paid dividends of $1.60, $1.66, $1.73, and $1.84 per share in the last four years. If the stock currently sells for $45, what is your best estimate of the company's cost of equity capital using the arithmetic average growth rate in dividends? g 1 = ($1.66 - 1.60/$1.60 = g 2 = ($1.73- 1.66)/$1.66 g 3 = ($1.84-1.73)/$1.73 g 4 = ($1.91-1.84)/$1.84 3.75% 4.22% 6.36% 3.80% the average arithmetic growth rate cost of equity =1.91*(1+4.53%)/45+4.53% 4.53% 8.97% What if you use the geometric average growth rate? g=$1.91= $1.60(1 + g)^4 cost of equitye =1.91*(1+4.527%)/45+4.53%. 4.527% 8.96% Drogo, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 12 years to maturity that is quoted at 110 percent of face value. The issue makes semiannual payments and has an embedded cost of 6 percent annually What is the company's pretax cost of debt? If the tax rate is 35 percent, what is the aftertax cost of debt? 4.89% 3.18% Mullineaux Corporation has a target capital structure of 70 percent common stock, 10 percent preferred stock, and 20 percent debt. Its cost of equity is 12 percent, the cost of preferred stock is 6 percent, and the pretax cost of debt is 8 percent. The relevant tax rate is 40 percent. Equity 12.0% preferred stock Debt 6.0% 4.8% WACC What is the aftertax cost of debt? 4.8% Lannister Manufacturing has a target debtequity ratio of .70. Its cost of equity is 14 percent, and its cost of debt is 7 percent. If the tax rate is 38 percent, what is the company's WACC? Cost of Capital cost of debt cost of equity 4% 14% WACC You are given the following information for Watson Power Co. Assume the company's tax rate is 30 percent. Debt: cost of equity preferred stock WACC Cost of Capital 3.99% 10.52% 5.63% 8.65% Suppose your company needs $18 million to build a new assembly line. Your target debtequity ratio is .7. The flotation cost for new equity is 7 percent, but the flotation cost for debt is only 4 percent. Your boss has decided to fund the project by borrowing money because the flotation costs are lower and the needed funds are relatively small. a. What is your company's weighted average flotation cost, assuming all equity is raised externally? flotation cost for new equity flotation cost for debt 7% 4% weighted average flotation cost What is the true cost of building the new assembly line after taking flotation costs into account? Amount raised(1 - 0.0576) = $18,000,000 true cost of building 19,101,124 70% 8.40% 10% 20% 0.60% 0.96% 9.96% Weight Weight*Cost of debt 0.41 0.018 0.59 0.082 10.02% MV Weight Weight*Cost of debt 6240000 26.16% 1.04% 16830000 70.56% 7.42% 781000 3.27% 0.18% 23851000 100.00% 8.65% Weight Weight*Cost of debt 0.59 4.1% 0.41 1.6% verage flotation cost 5.76% The Absolute Zero Co. just issued a dividend of $2.50 per share on its common stock. The company is expected to maintain a constant 5.2 percent growth rate in its dividends indefinitely. If the stock sells for $50 a share, what is the company's cost of equity? cost of equity =D1/Price +G D1 =2.50*(1+5.2%) cost of equity 2.63 10.46% Suppose Stark Ltd. just issued a dividend of $1.91 per share on its common stock. The company paid dividends of $1.60, $1.66, $1.73, and $1.84 per share in the last four years. If the stock currently sells for $45, what is your best estimate of the company's cost of equity capital using the arithmetic average growth rate in dividends? g 1 = ($1.66 - 1.60/$1.60 = g 2 = ($1.73- 1.66)/$1.66 g 3 = ($1.84-1.73)/$1.73 g 4 = ($1.91-1.84)/$1.84 3.75% 4.22% 6.36% 3.80% the average arithmetic growth rate cost of equity =1.91*(1+4.53%)/45+4.53% 4.53% 8.97% What if you use the geometric average growth rate? g=$1.91= $1.60(1 + g)^4 cost of equitye =1.91*(1+4.527%)/45+4.53%. 4.527% 8.96% Drogo, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 12 years to maturity that is quoted at 110 percent of face value. The issue makes semiannual payments and has an embedded cost of 6 percent annually What is the company's pretax cost of debt? If the tax rate is 35 percent, what is the aftertax cost of debt? 4.89% 3.18% Mullineaux Corporation has a target capital structure of 70 percent common stock, 10 percent preferred stock, and 20 percent debt. Its cost of equity is 12 percent, the cost of preferred stock is 6 percent, and the pretax cost of debt is 8 percent. The relevant tax rate is 40 percent. Equity 12.0% preferred stock Debt 6.0% 4.8% WACC What is the aftertax cost of debt? 4.8% Lannister Manufacturing has a target debtequity ratio of .70. Its cost of equity is 14 percent, and its cost of debt is 7 percent. If the tax rate is 38 percent, what is the company's WACC? Cost of Capital cost of debt cost of equity 4% 14% WACC You are given the following information for Watson Power Co. Assume the company's tax rate is 30 percent. Debt: cost of equity preferred stock WACC Cost of Capital 3.99% 10.52% 5.63% 8.65% Suppose your company needs $18 million to build a new assembly line. Your target debtequity ratio is .7. The flotation cost for new equity is 7 percent, but the flotation cost for debt is only 4 percent. Your boss has decided to fund the project by borrowing money because the flotation costs are lower and the needed funds are relatively small. a. What is your company's weighted average flotation cost, assuming all equity is raised externally? flotation cost for new equity flotation cost for debt 7% 4% weighted average flotation cost What is the true cost of building the new assembly line after taking flotation costs into account? Amount raised(1 - 0.0576) = $18,000,000 true cost of building 19,101,124 70% 8.40% 10% 20% 0.60% 0.96% 9.96% Weight Weight*Cost of debt 0.41 0.018 0.59 0.082 10.02% MV Weight Weight*Cost of debt 6240000 26.16% 1.04% 16830000 70.56% 7.42% 781000 3.27% 0.18% 23851000 100.00% 8.65% Weight Weight*Cost of debt 0.59 4.1% 0.41 1.6% verage flotation cost 5.76%