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please help with the following questions 1. What specific items of capital should be included in SIVEM's estimated weighted average cost of capital (WACC)? Should
please help with the following questions
1. What specific items of capital should be included in SIVEM's estimated weighted average cost of capital (WACC)? Should before-tax or after-tax values be used? Should historical (embedded) or new (marginal) values be used? Why? 2. Answer the following questions regarding cost of debt. a. What is your estimate of SIVMEND's cost of debt? b. Should flotation cost be included in the component cost of debt calculation? Explain. c. Suppose SIVMED's outstanding debt had not been recently traded, what other methods could be used to estimate the cost of debt? 3. Answer the following questions regarding the cost of preferred stock. a. What is your estimate of the cost of preferred stock? b. SIVMED's preferred stock is mare risky to investors than its debt, yet you should find that its before-tax yield to investors is lower than the yield on SIVMED's debt. Why does this occur? (Hint: Lecture notes can be a good source of information for this questions.) 4. Answer the following questions regarding the cost of retained earnings ( ). a. Why is there a cost associated with retained earnings? (Hint: Section 9-6 in the textbook) b. What is SIVMED's estimated cost of retained earnings using the CAPM approach? c. Why might one consider the T-bond rate to be a better estimate of the risk-free rate than the Tbill rate? (Hint: Section 9-6b in the textbook) d. How can SIVMED obtain a market risk premium for use in a CAPM cost-of-equity calculation? Discuss both the possibility of obtaining an estimate from some other organization and also the ways in which SIVMED could calculate a market risk premium in-house. (Hint: Section 9.5 in the textbook) 5. Answer the following questions regarding the cost of retained earnings ( ). a. Use the discounted cash flow (DCF, or Dividend Growth Approach) method to obtain an estimate of SIVMED's cost of retained eamings. b. Suppose SIVMED, over the last few years, has had a 14% average return on equity (ROE) and bas paid out about 40% of its net income as dividends. Estimate the firm's expected future growth rate, g, based on the retention growth model? 6. Use the bond-yield-plus-risk-premium method to estimate SIVMED's cost of retained camings ( ) if the judgmental risk premium is 3.5%. 1. What specific items of capital should be included in SIVEM's estimated weighted average cost of capital (WACC)? Should before-tax or after-tax values be used? Should historical (embedded) or new (marginal) values be used? Why? 2. Answer the following questions regarding cost of debt. a. What is your estimate of SIVMEND's cost of debt? b. Should flotation cost be included in the component cost of debt calculation? Explain. c. Suppose SIVMED's outstanding debt had not been recently traded, what other methods could be used to estimate the cost of debt? 3. Answer the following questions regarding the cost of preferred stock. a. What is your estimate of the cost of preferred stock? b. SIVMED's preferred stock is mare risky to investors than its debt, yet you should find that its before-tax yield to investors is lower than the yield on SIVMED's debt. Why does this occur? (Hint: Lecture notes can be a good source of information for this questions.) 4. Answer the following questions regarding the cost of retained earnings ( ). a. Why is there a cost associated with retained earnings? (Hint: Section 9-6 in the textbook) b. What is SIVMED's estimated cost of retained earnings using the CAPM approach? c. Why might one consider the T-bond rate to be a better estimate of the risk-free rate than the Tbill rate? (Hint: Section 9-6b in the textbook) d. How can SIVMED obtain a market risk premium for use in a CAPM cost-of-equity calculation? Discuss both the possibility of obtaining an estimate from some other organization and also the ways in which SIVMED could calculate a market risk premium in-house. (Hint: Section 9.5 in the textbook) 5. Answer the following questions regarding the cost of retained earnings ( ). a. Use the discounted cash flow (DCF, or Dividend Growth Approach) method to obtain an estimate of SIVMED's cost of retained eamings. b. Suppose SIVMED, over the last few years, has had a 14% average return on equity (ROE) and bas paid out about 40% of its net income as dividends. Estimate the firm's expected future growth rate, g, based on the retention growth model? 6. Use the bond-yield-plus-risk-premium method to estimate SIVMED's cost of retained camings ( ) if the judgmental risk premium is 3.5% Step by Step Solution
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