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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
$944. 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 just paid a dividend of $1.50. 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 used in computing the Weighted Average
Cost of Capital?
A 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?
the nearest .1%, what is the cost of equity using the Capital Asset Pricing Model?
A Using your Capital Asset Pricing Model cost of equity, to
the nearest .1%, what is Strolling's Weighted Average Cost of Capital?
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