Free Sample
COST OF COMMON EQUITY CORPORATE FINANCE
Solution.pdf
COST OF COMMON EQUITY Pearson Motors has a target capital structure of 35% debt and 65% common equity, with no preferred stock. The yield to maturity on the company's outstanding bonds is 9%, and its tax rate is 40%. Pearson's CFO estimates that the company's WACC is 13.20%. What is Pearson's cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places.
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2. Problem 10.04
COST OF EQUITY WITH AND WITHOUT FLOTATION Jarett &Sons's common stock currently trades at $23.00 a share. It is expected to pay an annual dividend of $2.50 a share at the end of the year (D1 = $2.50), and the constant growth rate is 7% a year.
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3. Problem 10.06
roblem Walk-Through COST OF COMMON EQUITY The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow 6% per year. Callahan's common stock currently sells for $30.00 per share; its last dividend was $2.50; and it will pay a $2.65 dividend at the end of the current year.
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4. Problem 10.09
WACC The Pawlson Company's year-end balance sheet is shown below. Its cost of common equity is 15%, its before-tax cost of debt is 11%, and its marginal tax rate is 40%. Assume that the firm's long-term debt sells at par value. The firm’s total debt, which is the sum of the company’s short-term debt and long-term debt, equals $1,158. The firm has 576 shares of common stock outstanding that sell for $4.00 per share.
Calculate Pawlson's WACC using market-value weights. Round your answer to two decimal places. Do not round your intermediate calculations. |
5. Problem 10.11
WACC AND PERCENTAGE OF DEBT FINANCING Hook Industries's capital structure consists solely of debt and common equity. It can issue debt at rd = 11%, and its common stock currently pays a $3.00 dividend per share (D0 = $3.00). The stock's price is currently $21.50, its dividend is expected to grow at a constant rate of 9% per year, its tax rate is 40%, and its WACC is 15.65%. What percentage of the company's capital structure consists of debt? Do not round intermediate calculations. Round your answer to two decimal places.
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6. Problem 10.18
WACC AND OPTIMAL CAPITAL BUDGET Adamson Corporation is considering four average-risk projects with the following costs and rates of return:
The company estimates that it can issue debt at a rate of rd = 10%, and its tax rate is 40%. It can issue preferred stock that pays a constant dividend of $5 per year at $42 per share. Also, its common stock currently sells for $34 per share; the next expected dividend, D1, is $3.50; and the dividend is expected to grow at a constant rate of 6% per year. The target capital structure consists of 75% common stock, 15% debt, and 10% preferred stock.
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