Question 1:

Jiminys Cricket Farm issued a zero coupon bond with 10 years left to maturity; the book value of this issue is $35 million, and the bonds sell for 51 percent of par.

Calculate the pre-tax cost of the debt (the yield to maturity) quoted as an EAR. (Enter answer as a percent rounded to two decimals.)

Yield to Maturity

%

What is the pre-tax cost of the debt (yield to maturity) quoted as an APR with semi-annual compounding? (Don't round the EAR if you try converting the EAR into an APR. Enter the APR as a percent rounded to two decimals.)

Yield to Maturity

%

Question 2:

Holdup Bank issued preferred stock that pays a constant $6.05 dividend each year. That stock currently sells for $97 per share. What is the cost of preferred equity if the next dividend will be paid in one year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Cost of preferred stock

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Question 3:

Epley Industries stock has a beta of 1.20. The company just paid an annual dividend of $.50, and the dividends are expected to grow at 6 percent. The expected return on the market is 11 percent, and Treasury bills are yielding 4.9 percent. The most recent stock price for the company is $66.

a.	Calculate the cost of equity using the discounted cash flow method (Chapter 6). (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

DCF method

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b.	Calculate the cost of equity using the Security Market Line (Chapter 13). (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

SML method

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