23 Jul WHAT IS THE MAXIMUM INITIAL COST THE COMPANY WOULD BE WILLING TO PAY FOR THE PROJECT?
Stock in Dragula Industries has a beta of 1.6. The market risk premium is 6 percent and T-bi Show more c14 1. Stock in Dragula Industries has a beta of 1.6. The market risk premium is 6 percent and T-bills are currently yielding 5.50 percent. The companys most recent dividend was $1.90 per share and dividends are expected to grow at a 7.0 percent annual rate indefinitely. If the stock sells for $38 per share what is your best estimate of the companys cost of equity? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g. 32.16)) Cost of equity % #4 You are given the following information for Lightning Power Co. Assume the companys tax rate is 30 percent. Debt: 6000 7.9 percent coupon bonds outstanding $1000 par value 25 years to maturity selling for 108 percent of par; the bonds make semiannual payments. Common stock: 510000 shares outstanding selling for $69 per share; the beta is 1.12. Preferred stock: 29000 shares of 4 percent preferred stock outstanding currently selling for $89 per share. Market: 10 percent market risk premium and 5.90 percent risk-free rate. What is the companys WACC? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g. 32.16)) WACC % #5 Scanlin Inc. is considering a project that will result in initial aftertax cash savings of $1.84 million at the end of the first year and these savings will grow at a rate of 1 percent per year indefinitely. The firm has a target debtequity ratio of 0.75 a cost of equity of 12.4 percent and an aftertax cost of debt of 5.2 percent. The cost-saving proposal is somewhat riskier than the usual project the firm undertakes; management uses the subjective approach and applies an adjustment factor of 3 percent to the cost of capital for such risky projects. What is the maximum initial cost the company would be willing to pay for the project? (Enter your answer in dollars not millions of dollars i.e. 1234567. Do not round intermediate calculations and round your final answer to the nearest whole dollar amount.) Maximum cost $ #6 Berta Industries stock has a beta of 1.25. The company just paid a dividend of $0.40 and the dividends are expected to grow at 5 percent. The expected return on the market is 12 percent and Treasury bills are yielding 6.4 percent. The most recent stock price for Berta is $81. a. Calculate the cost of equity using the DCF method. (Round your answer to 2 decimal places. (e.g. 32.16)) DCF method % b. Calculate the cost of equity using the SML method. (Round your answer to 2 decimal places. (e.g. 32.16)) SML method % Show less
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