Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Strolling Corporation is constructing its Cost of Capital schedule. The firm is at its target capital structure. Its 1 5 year bonds have a 3

Strolling Corporation is constructing its Cost of Capital schedule. The firm is at its target capital structure. Its 15 year bonds have a 3.5% coupon rate and sell for $980. Bond coupons are semi-annual. Rolling's stock beta is 1.3, the risk-free rate is 3.0%, and the return on the market portfolio is 7.0%. Rolling is a constant growth firm, and will pay a dividend of $1.50 next year. The stock sells for $45.00 and has a growth rate of 5.1%. The firm's tax rate is 30%. The firm's book value balance sheet is as follows: Assets $35,600, Long Term Debt $36,000, Equity ($1.00 par) $3,874, Retained Earnings -$4,274, Comprehensive Income 1,500. To the nearest .1%, what is the weight of debt that should be used in computing the Weighted Average Cost of Capital?
To the nearest .1%, what is the pre-tax cost of debt?
To the nearest .1%, what is the cost of retained earnings using the Constant Growth Model?
To the nearest .1%, what is the cost of equity using the Capital Asset Pricing Model?
Using your Constant Growth Model cost of equity, to the nearest .1%, what is Strolling's Weighted Average Cost of Capital?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Handbook Of Portfolio Mathematics

Authors: Vince

1st Edition

0471757683, 978-0471757689

More Books

Students also viewed these Finance questions

Question

8.2 What is the difference between x and m? between s and s?

Answered: 1 week ago