Problem 11 Intro Munich Re Inc. is expected to pay a dividend of $4.82 in one year, which is expected to grow by 4% a year forever. The stock currently sells for $76 a share The before-tax cost of debt is 9% and the tax rate is 34%. The target capital structure consists of 30% debt and 70% equity Part 1 IB Attempt 2/5 for 10 pts What is the company's weighted average cost of capital? Temas Submit Support Instructor Guide PrivacPORC 22020 em 12 Intro Honda is considering increasing production after unexpected strong demand for its new motorbike. To evaluate the proposal, the company needs to calculate its cost of capital. You've collected the following information: The company wants to maintain is current capital structure, which is 20% equity, 20% preferred stock and 60% debt. The firm has marginal tax rate of 34% The firm's preferred stock pays an annual dividend of $5.6 forever and each share is currently worth $135.26. The firm has one bond outstanding with a coupon rate of 6% paid semiannually, 10 years to maturity, a face value of $1,000, and a current price of $928.94. Honda's beta is 0.7, the yield on Treasury bonds is is 1.3% and the expected return on the market portfolio is 6% The current stock price is $43.33. The firm has just paid an annual dividend of $1 25, which is expected to grow by 4% per year The firm uses a risk premium of 3% for the bond-yield-plus-risk-premium approach New preferred stock and bonds would be issued by private placement, largely eliminating flotation costs New equity would come from retained earings, thus eliminating flotation costs Part 1 What is the (pre-tax) cost of debt? IB Attempt 1/5 for 10 pts. 3+ decimals Submit I Attempt 1/5 for 10 pts. Part 2 What is the cost of preferred stock? 14+ decimals Submit Attempt 1/5 for 10 pts Part 3 What is the cost of equity using the CAPM? To Attempt 175 for 10 pts. Part 4 What is the cost of equity using the dividend growth model? 3+ decimals Submit Part 5 Attempt 1/5 for 10 pts. What is the cost of equity using the bond yield plus risk premium? 3+ decimals Submit Part 6 IB Attempt 1/5 for 10 pts What is your best guess for the cost of equity if you think all three approaches are equally valid? Part 7 IB Attempt 1/5 for 10 pts What is the company's weighted average cost of capital? 3+ decimals Submit Contact Instructor Guide Privacy Policy