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include formulas and show all work. I want to learn how to do the problems, but I find the book and lecture notes to be
include formulas and show all work.
I want to learn how to do the problems, but I find the book and lecture notes to be very confusing. Please help me understand. Thanks.
QUESTION 1
- The Holmes Company's currently outstanding bonds have a 10% 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 40%, what is Holmes' after-tax cost of debt?
- a.4%
- b.5%
- c.6%
- d.7%
- e.8%
0.25 points
QUESTION 2- The Evanec Company's next expected dividend, D1, is $3.18; its growth rate is 6%; and its common stock now sells for $36.00. New stock (external equity) can be sold to net $32.40 per share.
- Using the Gordon Model, what is Evanec's cost of retained earnings, rs?
- a.14.44%
- b.14.53%
- c.14.67%
- d.14.78%
- e.14.83%
0.25 points
QUESTION 3- What is Evanec's percentage flotation cost, F?
- a.8.00%
- b.9.00%
- c.10.00%
- d.11.00%
- e.12.00%
0.25 points
QUESTION 4- Using the Gordon Model, what is Evanec's cost of new common stock, re?
- a.14.91%
- b.15.81%
- c.16.32%
- d.16.24%
- e.17.59%
0.25 points
QUESTION 5- You were hired as a consultant to Giambono Company, whose target capital structure is 40% debt, 15% preferred, and 45% common equity. The after-tax cost of debt is 6.00%, the cost of preferred is 7.50%, and the cost of retained earnings is 12.00%. The firm will not be issuing any new stock. What is its WACC?
- a.8.93%
- b.7.59%
- c.6.96%
- d.7.68%
- e.6.69%
0.25 points
QUESTION 6- The Sarco Company has a target capital structure of 30% debt, 10% preferred stock and 60% common equity from retained earnings. Sarco finished its most recent fiscal with $57 million in retained earnings and would like to raise capital to expand its operations.
- Given the information provided above, What is Sarco's retained earnings breakpoint?
- a.$92,000,000
- b.$93,000,000
- c.$94,000,000
- d.$95,000,000
- e.$96,000,000
0.25 points
QUESTION 7- Given the information provided above, how much new debt can Sarco raise and still maintain its current capital structure?
- a.$28,300,000
- b.$28,400,000
- c.$28,500,000
- d.$28,600,000
- e.$28,700,000
0.25 points
QUESTION 8- Given the information provided above, how much new preferred stock can Sarco raise and still maintain its current capital structure?
- a.$9,500,000
- b.$9,600,000
- c.$9,700,000
- d.$9,800,000
- e.$9,900,000
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