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Cost of Common Equity and WACC Palencia Paints Corporation has a target capital structure of 45% debt and 55% common equity, with no preferred stock. Its before-tax cost of debt is 12% and its marginal tax rate is 40%. The current stock price is P0 = $25.50. The last dividend was D0 = $3.75, and it is expected to grow at a 8% constant rate. What is its cost of common equity and its WACC? Round your answers to two decimal places. Do not round your intermediate calculations. a. rs= b. WACC=
Suppose that Diversified Technology has a B-rated bond with exactly 30 years until maturity, a face value of $1000 and a semiannual coupon rate of 6%. The yield to maturity on B-rated bonds today is 10 percent. What is the price of this bond today?
Consider an auction in which the government wants to auction out a construction project, to the lowest bidding contractor. A group of bidders (firms) are attending theauction but none of the firms knows for sure how many other firms will participate ..
Explain the interest rate risk and how it is related to the length of maturity and coupon rate.
Project H requires an initial investment of $100,000 and the produces annual cash flows of $45,000 per year for each of the next 3 years. Project T also requires an initial investment of $100,000 and produces cash flows of $30,000 in year 1, $40,000 ..
Jones Design wishes to estimate the value of its out-standing preferred stock. The preferred issue has an $80 par value and has a dividend rate of 8 percent. Similar-risk preferred stocks are currently earning a 12% annual rate of return. What is the..
Miranda Tool Company sells to retail hardware stores on credit terms of “net 30”. Annual credit sales are $18 million and are spread evenly throughout the year. The company’s variable cost ratio is 0.70, and its accounts receivable average $1.9 milli..
Matrix Co. has issued a preferred stock that pays a constant dividend of $3.50 per share. The company’s stock investors require a 8% return. What is your estimate of the preferred stock’s current price?
A company is considering a 5-year project that opens a new product line and requires an initial outlay of $78,000. The assumed selling price is $91 per unit, and the variable cost is $58 per unit. If the required rate of return is 11% per year, what ..
Compute the approximate internal rate of return (IRR) of the following investment project:
A company's January 1 balance in Merchandise Inventory is $40,000. The December 31 balance is $35,000. Cost of goods sold is $220,000. The company's inventory turnover is
Projected free cash flows should be discounted at the firm's weighted average cost of capital to find the value of its operations -
The total direct costs of a debt issue, when expressed as a percentage of gross proceeds, tends to do which of the following? Why?
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