Reference no: EM131316422
A corporation has 9,000,000 shares of stock outstanding at a price of $50 per share. They just paid a dividend of $2 and the dividend is expected to grow by 7% per year forever. The stock has a beta of 1.2, the current risk free rate is 5%, and the market risk premium is 6%. The corporation also has 300,000 bonds outstanding with a price of $1,100 per bond. The bond has a coupon rate of 11% with semiannual interest payments, a face value of $1,000, and 13 years to go until maturity. The company plans on reducing their level of debt until they reach their target debt ratio of 30%. They expect their cost of debt to be 8% and their cost of equity to be 11% under this new capital structure. The tax rate is 40%
1. What is the required return on the corporation’s stock? a) 9.4% b) 10.6% c) 11.3% d) 12.2%
2. What is the expected return on the corporation’s stock? a) 9.4% b) 10.6% c) 11.3% d) 12.2%
3. What is the yield to maturity on the company’s debt? a) 9.2% b) 9.4% c) 9.6% d) 9.8%
4. What percent of their current market value capital structure is made up of debt? a) 35% b) 42% c) 55% d) 58%
5. What is their WACC using their target capital structure and expected costs of debt and equity? a) 7.7% b) 8.7% c) 9.1% d) 9.8%
6. Given the new cost of debt, what should be the new price of the bond? a) $1,053 b) $1,127 c) $1,172 d) $1,239
7. Given the new cost of equity, what should be the new price of the stock? a) $36.75 b) $47.25 c) $53.50 d) $56.67
|
Which areas of study is included in field of macroeconomics
: ECON125-HK2: Which of the following areas of study is included in the field of macroeconomics? When the supply of a product increases but the demand for the product remains unchanged, the equilibrium price of the product will?
|
|
Determine the types of inventories these companies
: Determine the types of inventories these companies currently manage and describe their essential inventory characteristics.Analyze how each of their goods and service design concepts are integrated. Evaluate the role their inventory plays in the comp..
|
|
Prepare the given compounds from 2-phenylethanol
: What products would you obtain from reaction of 1-methylcyclohexanol with the following reagents - what products would you obtain from reaction of butan-1-ol with the following reagents
|
|
How the website relates to the learning objective
: It is important that you convey to your peers how the website relates to the learning objective and why it will be a valuable resource for them in the future
|
|
What is the yield to maturity on the company debt
: A corporation has 9,000,000 shares of stock outstanding at a price of $50 per share. They just paid a dividend of $2 and the dividend is expected to grow by 7% per year forever. The stock has a beta of 1.2, the current risk free rate is 5%, and the m..
|
|
Difference between weather reports and weather forecasts
: Describe atmospheric pressure, its measures, and the standard atmosphere at sea level. Explain the difference between weather reports and weather forecasts. Please provide a few examples
|
|
The logistician proposes an intensive distribution strategy
: By using an ABC classification (20-30-50) of the products by the weekly amounts sold, verify whether the distribution strategy proposed by the logistician is correct and, if not, modify it accordingly.
|
|
Analyze how each of their goods and service design
: Determine the types of inventories these companies currently manage and describe their essential inventory characteristics.Analyze how each of their goods and service design concepts are integrated. Evaluate the role their inventory plays in the comp..
|
|
Determine the size n of the dft
: For this problem, interpret the N-point DFT as an N-periodic function of k. Answer yes or no if the following frequencydomain signals are valid DFTs. For each valid DFT, determine the size N of the DFT and whether the time-domain signal is real.
|