a Cost of debt: Since Mindflex's bonds do not trade very frequently, you have decided to use 9.07 percent as your cost of debt, which is the yield to maturity on a portfolio of bonds with a similar credit rating and maturity as Mindfex's outstanding debt. In addition, Mindflex faces a corporate tax rate of 34 percent b. Cost of common equity Mindflex's common stock paid a $1.21 dividend last year. In addition, Mindfex's dividends are growing at a rate of 5.3 percent per year and this growth rate is expected to continue into the foreseeable future. The price of this stock is currently $30.22 e Cost of debt Now let's assume that Mindtex's bonds are frequently traded A Mindfiex bond has a $1,000 par value (face value) and a coupon interest rate of 12.6 percent that is paid usly. The bonde y selling for $1,123 and will matu Mindex's 801

a Cost of debt: Since Mindflex's bonds do not trade very frequently, you have decided to use 9.07 percent as your cost of debt, which is the yield to maturity on a portfolio of bonds with a similar credit rating and maturity as Mindfex's outstanding debt. In addition, Mindflex faces a corporate tax rate of 34 percent b. Cost of common equity Mindflex's common stock paid a $1.21 dividend last year. In addition, Mindfex's dividends are growing at a rate of 5.3 percent per year and this growth rate is expected to continue into the foreseeable future. The price of this stock is currently $30.22 e Cost of debt Now let's assume that Mindtex's bonds are frequently traded A Mindfiex bond has a $1,000 par value (face value) and a coupon interest rate of 12.6 percent that is paid usly. The bonde y selling for $1,123 and will matu Mindex's 801

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Similar questions

The CFO of Lenox Industries hired you as a consultant to help estimate its cost of capital. You have obtained the following data: (1) rd = yield on the firm's bonds = 7.00% and the risk premium over its own debt cost = 4.00%. (2) TRF = 5.00%, RPM = 6.00%, and b = 1.45. (3) D₁ = $1.20, Po = $35.00, and g = 8.00% (constant). You were asked to estimate the cost of equity based on the three most commonly used methods and then to indicate the difference between the highest and lowest of these estimates. What is that difference? O 2.35% O 2.13% 2.84% 2.40% 2.70%
You have been hired by the CFO of Lugones Industries to help estimate its cost of common equity. You have obtained the following data: (1) rd = yield on the firm's bonds = 7.00% and the risk premium over its own debt cost = 4.00%. (2) rRF = 5.00%, RPM = 6.00%, and b = 1.25. (3) D1 = $1.20, P0 = $35.00, and g = 8.00% (constant). You were asked to estimate the cost of common based on the three most commonly used methods and then to indicate the difference between the highest and lowest of these estimates. What is that difference? 1.13% 1.50% 1.88% 2.34% 2.58%
la bonitob at bloky enig (7.8) The interest rate investors expect on a new bond issue can be determined by computing the for the company's Alternatively, it is possible on newly to determine the cost of new debt financing by finding the issued bond with similar (7.9) The firm's overall measure of the cost of capital is the cost of debt is the The dollar cost of equity is overall firm average cost of capital is the cost of equity plus the cost of debt, divided by The dollar (7.10) Interest (is / is not) a tax-deductible expense, and dividends paid to stockholders (are / are not). The payment of interest reduces the firm's taxes by after-tax cost of debt in dollars equals The after-tax cost of debt in percentage terms is WACC = dito The The
The CFO of Lenox Industries hired you as a consultant to help estimate its cost of capital. You have obtained the following data: (1) rd = yield on the firm’s bonds = 7.00% and the risk premium over its own debt cost = 4.00%. (2) rRF = 5.00%, RPM = 6.00%, and b = 1.05. (3) D1 = $1.20, P0 = $35.00, and g = 8.00% (constant). You were asked to estimate the cost of equity based on the three most commonly used methods and then to indicate the difference between the highest and lowest of these estimates. What is that difference? 0.43% 0.49% 0.48% 0.38% 0.37%
You plan to purchase debenture bonds from one of two companies in the same industry that are similar in size and performance. The first company has $800,000 in total liabilities, and $1,200,000 in equity. the second company has $600,000 in total liabilities, and $400,000 in equity. 2. Which company's debenture bonds are less risky based on the debt-to-equity ratio? Explain. Show your calculations to support your decision.
Suppose that Mr. Dubinski has obtained from Blaine’s banker the quotes (the one in the template, ignore the one provided in the case) for default spreads over 10-year Treasury bonds. What do these quotes imply about BKI’s cost of debt at the various debt levels and credit ratings? Compute BKI’s weighted average cost of capital at each of the indicated debt levels. What do your calculations imply about Blaine’s optimal capital structure?
A company hired you as a consultant to help estimate its cost of capital. You have obtained the following data: (1) rd = yield on the firm’s bonds = 7.00% and the risk premium over its own debt cost = 4.00%. (2) rRF = 5.00%, RPM = 6.00%, and b = 1.50. (3) D1 = $1.20, P0 = $35.00, and g = 8.00% (constant). You were asked to estimate the cost of equity based on the three most commonly used methods and then to indicate the difference between the highest and lowest of these estimates. What is that difference? Group of answer choices 2.61% 2.67% 3.54% 3.00% 3.72%
Bond valuation related problems should be solved by using a financial calculator or MS excel spreadsheet. Accordingly, you must show the values of all relevant time valu of money variables In order to accurately assess the capital structure of a firm, it is necessary to convert its balance sheet figures from historical book values to market values. KJM Corporation's balance sheet (book values) as of today is as follows: Long-term debt (bonds, at par) 23,500,000 Preferred stock 2,000,000 Common stock ($10 par) 10,000,000 Retained earnings 4,000,000 Total debt and equity $39,500,000 The bonds have a 7.0% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 10 years from today. The yield to maturity is 11%, so the bonds now sell below par. What is the current market value of the firm's debt (hint: bond price* numer of bond shares)?
3. The CFO of Lenox Industries hired you as a consultant to help estimate its cost of capital. You have obtained the following data: (1) rayield on the firm's bonds = 9.00% and the risk premium oover its own debt cost = 4.00%. (2) TRF = 5.00% , RPM = 6.20%, and b= 1.55. (3) D₁ = $1.50, Po= $36.00, and g = 8.00% (constant). You were asked to estimate the cost of equity based on O the three most commonly used methods and then to indicate the difference between the highest and lowest of these estimates. What is that difference? O Oa. 4.86% Ob. 0.83% O c. 1.45% O d. 1.61% O e. 2.44%
concatti corporation hired your consulting firm to help them estimate the cost of equity. the yeild on the firms bonds is 10.50% and your firms economist believe that the cost of equity can be estimated using a risk premium of 4.85% over a firms own cost of debt. what is an estimate of the firms cost of equity from retained earnings?
Aneka Inc. hire your consulting firm to help them estimate the cost of equity. Yield of Aneka Inc. bonds is 7.25%, and the economist company in your company believes that the cost equity can be estimated using a risk premium of 3.50% over the company's cost of debt. What is Lange's estimated cost of equity from retained earnings? a. 10.75% b. 11.18% c. 11.63% d. 12.09% e. 12.58%
Eaton Electronic Company's treasurer uses both the capital asset pricing model and the dividend valuation model to compute the cost of common equity (also referred to as the required rate of return for common equity). Assume: Rf Km = 8% = 6% = В D₁ = $0.60 Po = $20 8 = 5% = 1.8 a. Compute K; (required rate of return on common equity based on the capital asset pricing model). Note: Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places. Ki 0.10% b. Compute Ke (required rate of return on common equity based on the dividend valuation model). Note: Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places. Ke %

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS