Question
Instructions: You are required to use a financial calculator or spreadsheet (Excel) to solve 10 problems related to the cost of capital. You are required
Instructions: You are required to use a financial calculator or spreadsheet (Excel) to solve 10 problems related to the cost of capital. You are required to show the following 3 steps for each problem (sample questions and solutions are provided for guidance):
(i) Describe and interpret the assumptions related to the problem.
(ii) Apply the appropriate mathematical model to solve the problem.
(iii) Calculate the correct solution to the problem.
Problem:
Kokapeli, Inc. has a target capital structure of 40% debt and 60% common equity, and has a 40% marginal tax rate. If the firm's yield to maturity on bonds is 9.5% and investors require a 16% return on the firm's common stock, what is the firm's WACC?
Jiffy Co. expects to pay a dividend of $3.25 per share in one year. The current price of Jiffy common stock is $54.50 per share. Flotation costs are $8.00 per share when Jiffy issues new stock. What is the cost of internal common equity if the long-term growth in dividends is projected to be 4.75 percent indefinitely?
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