Builtrite has come up with the following capital structure which management believes is optimal: Debt 40% Preferred stock 10% Common stock 50% Bonds: Builtrite is planning on offering a $1000 par value, 20-year, 8% coupon bond with an expected selling price of $1025. Flotation costs would be $55 per bond. Preferred Stock: Builtrite could sell a $49 par value preferred with an 8% coupon for $42 a share. Flotation costs would be $2 a share. Common stock: Currently, the stock is selling for $62 a share and has paid a $2.82 dividend. Dividends are expected to continue growing at 10%. Flotation costs would be $3.75 a share and Builtrite has $350,000 in available retained earnings. Assume a 40% tax bracket. What is the after-tax cost of preferred stock? 9.80% O 6.47% O 9.68% ○ 8.76% #3 E F3 F4 *- 54 R % 285 T F6 6 Y F7 & 7 C FB 8 *CO P
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- What is the Cost of Preferred Stock for Foggy Futures Weather Forecasters? The firm is in the 40% tax bracket. The optimal capital structure is listed below: The firm can sell preferred stock with a dividend that is 6% of the current price of $93. The cost of issuing and selling the stock is expected to be $6 per share. (NB: Use the intrinsic (internal) values (rates, cost) of each component in the capital structure.)Calculate the weighted average cost of capital for Foggy Futures Weather Forecasters. The firm is in the 25% tax bracket. The optimal capital structure is listed below: SOURCE OF CAPITAL WEIGHT Debt 20% Preferred Stock 30% Common Stock 50% Debt The firm can issue $1000 par value, 9% coupon interest bond with a 15 year maturity date. The bond has an average discount of $20 and flotation costs of $30 per bond. The selling price is $1,000 Preferred Stock The firm can sell preferred stock with a dividend that is 10% of the current price of $95. The cost of issuing and selling the stock is expected to be $7 per share Common Stock The firm's common stock is currently selling for $100 per share. The firm expects to pay cash dividends of $12 per share next year. The dividends have been growing at 8%. The stock was discounted by $7, and the flotation costs amounted to $5 per share.What is the cost of common stock for Foggy Futures Weather Forecasters? The firm is in the 40% tax bracket. The optimal capital structure is listed below: Source of Capital Weight Long-Term Debt 25% Preferred Stock 20% Common Stock 55% Debt: The firm can issue $1,000 par value, 8% coupon interest bonds with a 20-year maturity date. The bond has an average discount of $30 and flotation costs of $30 per bond. The selling price is $1,000. Preferred Stock: The firm can sell preferred stock with a dividend that is 8% of the current price. The stock costs $95. The cost of issuing and selling the stock is expected to be $5 per share. Common Stock: The firm’s common stock is currently selling for $90 per share. The firm expects to pay cash dividends of $7 per share next year. The dividends have been growing at 6%. The stock must be discounted by $7, and flotation costs are expected to amount to $5 per share. Retained Earnings: The firm expects to have enough retained…
- Mackenzie Company has a price of $34 and will issue a dividend of $2.00 next year. It has a beta of 1.5, the risk-free rate is 5.2%, and the market risk premium is estimated to be 5.2%. a. Estimate the equity cost of capital for Mackenzie. b. Under the CDGM, at what rate do you need to expect Mackenzie's dividends to grow to get the same equity cost of capital as in part (a)?Mackenzie Company has a price of $37 and will issue a dividend of $2.00 next year. It has a beta of 1.2, the risk-free rate is 5.4%, and the market risk premium is estimated to be 4.8%. a. Estimate the equity cost of capital for Mackenzie. b. Under the CDGM, at what rate do you need to expect Mackenzie's dividends to grow to get the same equity cost of capital as in part (a)? a. Estimate the equity cost of capital for Mackenzie. The equity cost of capital for Mackenzie is %. (Round to two decimal places.) b. Under the CGDM, at what rate do you need to expect Mackenzie's dividends to grow to get the same equity cost of capital as in part (a)? The expected growth rate for dividends is | %. (Round to two decimal places.)Mackenzie Company has a price of $32 and will issue a dividend of $2.00 next year. It has a beta of 1.1, the risk-free rate is 5.9%, and the market risk premium is estimated to be 4.8%. a. Estimate the equity cost of capital for Mackenzie. b. Under the CDGM, at what rate do you need to expect Mackenzie's dividends to grow to get the same equity cost of capital as in part (a)? a. Estimate the equity cost of capital for Mackenzie. The equity cost of capital for Mackenzie is %. (Round to two decimal places.)
- Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, D1, to be $2.40 and it expects dividends to grow at a constant rate gL = 5.8%. The firm's current common stock price, P0, is $21.00. The current risk-free rate, rRF, = 4.8%; the market risk premium, RPM, = 6.1%, and the firm's stock has a current beta, b, = 1.2. Assume that the firm's cost of debt, rd, is 10.57%. The firm uses a 4.1% risk premium when arriving at a ballpark estimate of its cost of equity using the bond-yield-plus-risk-premium approach. What is the firm's cost of equity using each of these three approaches? Do not round intermediate calculations. Round your answers to two decimal places. CAPM cost of equity: % Bond-Yield-Plus-Risk-Premium: % DCF cost of equity: % If you are equally confident of all three methods, then what is the best estimate of the firm’s cost of…Use the information below to calculate Weighted Average Cost of Capital, assuming that no new shares will need to be sold and a capital structure that is 50% debt and 50% equity. coupon rate on bonds 13.00% corporate tax rate 25.00% anticipated dividend $5.00 yield to maturity on bonds 11.00% current share price $100.00 floatation costs 5.00% expected growth rate 7.00% a. 10.13% b. 10.26% c. 12.13% d. 11.88%Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, D1, to be $2.10 and it expects dividends to grow at a constant rate g = 4.4%. The firm's current common stock price, P0, is $25.00. The current risk-free rate, rRF, = 4.7%; the market risk premium, RPM, = 6.0%, and the firm's stock has a current beta, b, = 1.15. Assume that the firm's cost of debt, rd, is 11.00%. The firm uses a 3.0% risk premium when arriving at a ballpark estimate of its cost of equity using the bond-yield-plus-risk-premium approach. What is the firm's cost of equity using each of these three approaches? Round your answers to two decimal places. CAPM cost of equity: % Bond yield plus risk premium: % DCF cost of equity: % What is your best estimate of the firm's cost of equity?
- Radon Inc. is financing its new invention with issuance of 10 shares of 6 years 4.5% coupon bond with yield to maturity 6%, 60 shares of preferred stock with dividend $2.5 and return of 10%, and 800 shares of common equity at current price of $15 per share. If its common stock has beta 1.6 and long-term risk free rate is 3% and market risk premium is 6%. What is the Weighted Average Cost of Capital given its tax rate is 30%? Ignore floatation costs (Please show work)Dexter International is expected to pay a dividend next year of $2.10 per share. Dexter has a beta of 1.00 and the market rate of return is 12% and the risk free rate is 3%. What is the dividend yield if an investor purchases the stock at $41.68 a share? Group of answer choices 5.0% 6.0% 9.0% 12.0%An investor is considering investing in the following two shares: Beta Fortress plc. 1.4 Castle plc 0.5 A) if the return on treasury bills is 5% and the market risk premium is 10%, what is the expected return of a portfolio made up of 40% fortress shares and 60% of castle shares? B) explain beta in the context of the CAPM and explain what the betas for fortress and castle shares imply about those shares C) shares in the empire plc have a beta of 0.9 and are expected to have a return of 16%. Given the information in part A are empire shares correctly priced according to the CAPM? Explain your answer and what is likely to happen to the shares in Empire PLC. D)explain what to the market risk premium and risk free rate of return in the CAPM represent. E)rxplain why it is difficult to empirically test the CAPM.