Reference no: EM131317904
Question 1. A firm is considering a $300,000 debt issue. Their corporate tax rate is 34%. This long-term issue will pay a coupon rate of 5.6%. What is the after-tax cost of this debt?
Question 2. If a firm pays a constant dividend of $3.45 a share and investors require a 12% return, what is the value of that firm's stock?
- $12.45
- $345.00
- $28.75
- $34.50
Question 3. Next year, stockholders will benefit from a 7% increase over the current dividend of $4.86, and every indication points to continued growth at this same pace. This stock is currently trading at $42 per share. Given that it costs $2.88 per share to issue new common stock, what is the cost of new common equity capital?
- 19.42%
- 20.29%
- 12.38%
- 12.42%
Question 4. A firm offers a 15-year maturity bond with $1,000 face value and 6% coupon rate. The current market price for the bond is $998. Selling the bonds costs the firm $60 per share. What is the after-tax cost of this debt, assuming a 34% corporate tax?
Question 5. On the secondary market, bonds are trading at $1105. The bonds have a 3.75% coupon rate paid annually and mature in five years. What is the yield to maturity (expressed at an annual rate) for the bonds if an investor buys them at the $1105 market price, and what is the current yield?
- This bond has a yield-to-maturity rate of 1.55% and a current yield of 3.39%.
- This bond has a yield-to-maturity rate of 1.38% and a current yield of 3.75%.
- This bond has a yield-to-maturity rate of 1.55% and a current yield of 3.75%.
- This bond has a yield-to-maturity rate of 5.63% and a current yield of 3.39%.
Question 6. The current dividend for a corporation is $3.73. The dividend is expected to increase by 12%, and it is expected to continue that rate of growth for the foreseeable future. Given that their stock is trading at $38 per share and that it costs $3.37 per share to issue new common stock, what is the cost of new common equity capital?
- 10.99%
- 22.77%
- 24.06%
- 10.77%
Question 7. A firm offers a 10-year maturity bond with $1,000 face value and 5.25% coupon rate. The current market price for the bond is $1025. Selling the bonds costs the firm $48 per share. What is the after-tax cost of this debt, assuming a 34% corporate tax?
Question 8. On the secondary market, bonds are trading at $925. The bonds have a 2.83% coupon rate paid semiannually and mature in three years. What is the yield to maturity (expressed at an annual rate) for the bonds if an investor buys them at the $925 market price?
- This bond has a yield-to-maturity rate of 8.55% and a current yield of 2.83%.
- This bond has a yield-to-maturity rate of 3.21% and a current yield of 2.83%.
- This bond has a yield-to-maturity rate of 5.58% and a current yield of 3.06%.
- This bond has a yield-to-maturity rate of 2.79% and a current yield of 3.06%.
Question 9. A common stock paid a dividend of $3.75 this year. It is expected to grow at 8% each year for the foreseeable future. Investors require an 11% return rate. What is the value of a share of this stock?
- $135.00
- $125.00
- $22.50
- $3.97
Question 10. A firm has $76,000,000 in debt, which accounts for 43% of their total funds raised; the after-tax cost of these funds is 6.10%. The same firm has $100 million in common stock, which accounts for 57% of their total funds raised; their after-tax costs (including transaction costs) are 15.7%. What is the weighted average cost of capital for these funds?
- 2.63%
- 11.55%
- 10.21%
- 8.92%
Question 11. A firm issued $10 million in preferred stock at a price of $60.35 per share. The preferred shares carry an 11% dividend. The firm pays $2.87 per share in flotation costs per share. What is the cost of capital for this issuance of preferred stock?
- 11.54%
- 2.31%
- 43.23%
- 16.01%
Question 12. A preferred stock pays 3% on its par value of $200, and the required rate of return is 9%. What is the dividend?
Question 13. A stock paid $3.17 in dividends at the end of last year and is expected to pay a cash dividend until infinity. No growth is expected. Investors require a 6% rate of return. What is the value of the common stock?
Question 14. A preferred stock pays 3% on its par value of $200, and the required rate of return is 9%. What is the value of the preferred stock?
Question 15. The table below shows a firm's capital structure and estimated capital costs. Calculate this firm's weighted average cost of capital.
- 9.00%
- 10.51%
- 12.85%
- 15.35%
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