Reference no: EM133030166
Questions -
Q1. Tomtom Co. issued a 10-year bond, with a coupon of 3%, making semiannual payments and a par value of $1,000. The bond currently sells for 95% of par. The company's tax rate is 21%. Calculate the before-tax cost of debt.
Q2. Tomtom Co. issued a 10-year bond, with a coupon of 3%, making semiannual payments and a par value of $1,000. The bond currently sells for 95% of par. The company's tax rate is 21%. Calculate the after-tax cost of debt.
Q3. Jaffe Co. just paid a dividend of $4.25 per share. Dividends are expected to grow at 3% forever. The stock is currently trading at $100 per share. Calculate the cost of common stock for the firm.
Q4. The Rare Find Co. has the following information:
Debt outstanding: $450 million
The before-tax cost of debt: 5%
Market cap: $1,200 million
Cost of common stock: 10%
Tax rate: 21%
Rare Find is evaluating a project with the following information:
Over the next five years, EBIT will equal 20 million each year
An investment of $25 million is required in net working capital at the beginning of the project, which will be recovered at the end of the project.
The cost of the equipment will be $80 million depreciated using straight-line to zero over the project's life, with no salvage value.
The project requires an additional 2% risk premium above the firm's WACC.
a. Calculate the risk-adjusted WACC for the firm.
b. Calculate the operating cash flows for the first year of the project.
c. Calculate the net present value for the project.