Reference no: EM133062150
Strolling Corporation is constructing its Cost of Capital schedule. Show your answers to the nearest .1%. The firm is at its target capital structure. Its 15 year bonds have a 3.5 % coupon rate and sell for $944. Bond coupons are semi-annual. Rolling's stock beta is 1.3, the risk-free rate is 3.0 %, and the return on the market portfolio is 7.0%. Rolling is a constant growth firm, and just paid a dividend of $1.50. The stock sells for $45.00 and has a growth rate of 5.1%. The firm's tax rate is 30%. The firm's book value balance sheet is as follows: Assets $35,600, Long Term Debt $36,000, Equity ($1.00 par) $3,874, Retained Earnings -$4,274, Comprehensive Income 1,500.
1.) To the nearest .1%, what is the weight of debt that should be used used in computing the Weighted Average Cost of Capital?
2.) To the nearest .1%, what is the pre-tax cost of debt?
3.) To the nearest .1%, what is the cost of retained earnings using the Constant Growth Model?
4.) To the nearest .1%, what is the cost of equity using the Capital Asset Pricing Model?
5.) Using your Capital Asset Pricing Model cost of equity, to the nearest .1%, what is Strolling's Weighted Average Cost of Capital?
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