Question
Olli Discount Stores has 60 million shares of common stock with a book value of $12 per share and a current market price of $26
Olli Discount Stores has 60 million shares of common stock with a book value of $12 per share and a current market price of $26 per share. A dividend of $0.75 is expected to be paid next year. Dividends are projected to grow at 3.50% each year thereafter. The firms outstanding bonds have a total face value of $112 million, a maturity of 20 years, a 1.40% semi-annual coupon, and are selling currently for 105% of par value. The marginal tax rate is 21%. 11. What is the weight of equity? A) 92.99% (ANSWER) B) 7.01% C) 14.04% D) 85.96% 12. What is the weight of debt? A) 92.99% B) 85.96% C) 14.04% D) 7.01% (ANSWER) 13. What is the cost of equity? A) 6.38% (ANSWER) B) 3.50% C) 6.00% D) 2.88% 14. What is the cost of debt? A) 0.56% B) 1.24% C) 2.24% D) 1.12% (ANSWER) 15. What discount rate should Olli Inc. use to evaluate its projects? A) 6.33% B) 25.90% C) 6.00% (ANSWER) D) 4.97%
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