15. Stock in Parrothead Industries has a beta of 1.15. The market risk premium is 8%, and T-bills are currently yielding 4%. Parrotheads most recent dividend was $1.80 per share, and dividends are expected to grow at a 5% annual rate indefinitely. If the stock sells for $34 per share, what is your best estimate of Parrotheads cost of equity?

16. Suppose Massey Ltd. just issued a dividend of $1.22 per share on its common stock. The company paid dividends of $.78, $.91, $.93, and $1.00 per share in the last four years. If the stock currently sells for $45, what is your best estimate of the companys cost of equity capital using the arithmetic average growth rate in dividends?

17. Jiminys Cricket Farm issued a 30-year, 10% semiannual bond 7 years ago. The bond currently sells for 108% of its face value. The companys tax rate is 35%.

1. What is the pretax cost of debt?
2. What is the aftertax cost of debt?
3. What is more relevant, the pretax or the aftertax cost of debt? Why?

18. Holdup Bank has an issue of preferred stock with a $6 stated dividend that just sold for $92 per share. What is the banks cost of preferred stock?

19. Mullineaux Corporation has a target capital structure of 50% common stock, 5% preferred stock, and 45% debt. Its cost of equity is 16%, the cost of preferred stock is 7.5%, and the cost of debt is 9%. The relevant tax rate is 35%.

1. What is Mullineauxs WACC?
2. The company president has approached you about Mullineauxs capital structure. He wants to know why the company doesnt use more preferred stock financing, since it costs less than debt. What would you tell the president?

20. Miller Manufacturing has a target debt-equity ratio of .60. Its cost of equity is 18% and its cost of debt is 10%. If the tax rate is 35%, what is Millers WACC?

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