Reference no: EM131978116

Problem 1 - Calculating Cost of Equity

The Muse Co. just issued a dividend of $2.65 per share on its common stock. The company is expected to maintain a constant 5.50 percent growth rate in its dividends indefinitely.

If the stock sells for $53 a share, what is the company's cost of equity?

Problem 2 - Calculating Cost of Preferred Stock

Holdup Bank has an issue of preferred stock with a $4.95 stated dividend that just sold for $86 per share. What is the bank's cost of preferred stock?

Problem 3 - Calculating WACC

Mullineaux Corporation has a target capital structure of 70 percent common stock, 10 percent preferred stock, and 20 percent debt. Its cost of equity is 13 percent, the cost of preferred stock is 4 percent, and the pretax cost of debt is 6 percent. The relevant tax rate is 35 percent.

a. What is Mullineaux's WACC?

b. What is the after tax cost of debt?

Sixx AM Manufacturing has a target debt-equity ratio of 0.45. Its cost of equity is 13 percent, and its cost of debt is 7 percent. If the tax rate is 34 percent, what is the company's WACC?