If Wild Widgets Inc. were an all-equity company, it would have a beta of 1.05. The company has a target debt-to- equity ratio of 0.4. The expected return on the market portfolio is 12 percent, and Treasury bills currently yield 4.4 percent. The company has one bond issue outstanding that matures in 20 years and has a 7.8 percent coupon rate. The bond currently sells for $1,120. The corporate tax rate is 40 percent. a. What is the company's cost of debt? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit % sign in your response.) Cost of debt % b. What is the company's cost of equity? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit % sign in your response.) Cost of equity % c. What is the company's WACC? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit % sign in your response.) WACC %

If Wild Widgets Inc. were an all-equity company, it would have a beta of 1.05. The company has a target debt-to- equity ratio of 0.4. The expected return on the market portfolio is 12 percent, and Treasury bills currently yield 4.4 percent. The company has one bond issue outstanding that matures in 20 years and has a 7.8 percent coupon rate. The bond currently sells for $1,120. The corporate tax rate is 40 percent. a. What is the company's cost of debt? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit % sign in your response.) Cost of debt % b. What is the company's cost of equity? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit % sign in your response.) Cost of equity % c. What is the company's WACC? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit % sign in your response.) WACC %

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

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If Wild Widgets Inc. were an all-equity company, it would have a beta of 1.50. The company has a target debt-to-equity ratio of 0.4. The expected return on the market portfolio is 11 percent, and Treasury bills currently yield 5.3 percent. The company has one bond issue outstanding that matures in 20 years and has a 9.6 percent coupon rate. The bond currently sells for $1,210. The corporate tax rate is 34 percent. a. What is the company’s cost of debt? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit % sign in your response.) b. What is the company’s cost of equity? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit % sign in your response.) c. What is the company’s WACC? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit % sign in your response.)
If Wild Widgets, Inc., were an all-equity company, it would have a beta of .90. The company has a target debt-equity ratio of .60. The expected return on the market portfolio is 11 percent and Treasury bills currently yield 3.3 percent. The company has one bond issue outstanding that matures in 26 years, a par value of $2,000, and a coupon rate of 6 percent. The bond currently sells for $2,130. The corporate tax rate is 24 percent. a. What is the company’s cost of debt? What is the company’s cost of equity? What is the company’s weighted average cost of capital?
If Smolinski, Incorporated, were an all-equity company. it would have a beta of 1.05. The company has a target debt-equity ratio of .40. The expected return on the market portfolio is 10 percent and Treasury bills currently yield 3.8 percent. The company has one bond issue outstanding that matures in 22 years, a par value of $1,000, and a coupon rate of 6.7 percent. The bond currently sells for $1,085. The corporate tax rate is 25 percent. a. What is the company's cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the company's cost of equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the company's weighted average cost of capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Cost of debt b. Cost of equity c. WACC % de de de % %
If Smolinski, Incorporated, were an all-equity company, it would have a beta of 1.15. The company has a target debt-equity ratio of .80. The expected return on the market portfolio is 12 percent and Treasury bills currently yield 3.7 percent. The company has one bond issue outstanding that matures in 30 years, a par value of $2,000, and a coupon rate of 6.4 percent. The bond currently sells for $2,090. The corporate tax rate is 23 percent. a. What is the company's cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the company's cost of equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the company's weighted average cost of capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Cost of debt b. Cost of equity c. WACC 6.13 % % %
If Smolinski, Incorporated, were an all-equity company, it would have a beta of.95. The company has a target debt - equity ratio of .50. The expected return on the market portfolio is 12 percent and Treasury bills currently yield 3.1 percent. The company has one bond issue outstanding that matures in 25 years, a par value of $1,000, and a coupon rate of 6 percent. The bond currently sells for $ 1,050. The corporate tax rate is 23 percent. a. What is the company's cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g ., 32.16.) b. What is the company's cost of equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the company' s weighted average cost of capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e. g., 32.16.)
The Carpetto’s stock currently sells for $23 per share, will pay a dividend of $2.14 at the end of the current year, and the dividend is expected to grow at 7 percent per year in the future. Using the DDM approach, what is its cost of common equity? If the firm’s beta is 1.6, the risk-free rate is 9 percent, and the average return on the market is 13 percent, what will be the firm’s cost of common equity using the CAPM approach? If the estimated cost of equity is not the same using the CAPM and DDM approaches, how we can decide on the proper value for cost of equity? Explain.
Your broker has recommended that you purchase stock in Beacan, Inc. Beacan recently paid its annual dividend ($14.00). The firm also boasts an ROE of 15%, of which 50% is paid as dividends. Analysts estimate that the stock has a beta of 0.79. The current risk-free rate is 2.00% and the market return (RM) is 11.10%. Assuming that CAPM holds, what is the intrinsic value of this stock?
Westsyde Tool Company is expected to pay a dividend of $1.50 in the upcoming year. The risk-free rate of return is 6%, and the expected return on the market portfolio is 14%. Analysts expect the price of Westsyde Tool Company shares to be $22 a year from now. The beta of Westsyde Tool Company's stock is 1.1. Compute the intrinsic value of Westsyde Tool Company's stock. Round your answer to 2 decimal places, and enter your answer without the dollar sign.
The Yempy Corp. is recently paid a dividend of $2. The dividends are expected to grow at 20% for next 4 years due to technological advanced and thereafter, the growth rate settles down to 2% for ever. The risk-free rate is 2.2% and the market risk premium is 6%. If the beta of the stock is 1.3, what must be the current selling price of the company's stock? Calculate the current selling price of the stock. The current selling price of the stock is $36.72 The current selling price of the stock is $35.07 The current selling price of the stock is $25.08 O The current selling price of the stock is $31.05
Reidsville Hardware Co. stock currently sells for $73.09 per share and has a beta of 1.23. The market risk premium is 7.00 percent and the risk-free rate is 2.86 percent annually. The company just paid a dividend of $4.33 per share, which it has pledged to increase at an annual rate of 3.35 percent indefinitely. What is your best estimate of the company's cost of equity? Hint - take an average.
The Yempy Corp. is recently paid a dividend of $2. The dividends are expected to grow at 20% for next 4 years due to technological advanced and thereafter, the growth rate settles down to 2% for ever. The risk-free rate is 2.2% and the market risk premium is 6%. If the beta of the stock is 1.3, what must be the current selling price of the company's stock? Calculate the current selling price of the stock. (A) The current selling price of the stock is $31.05 (B) The current selling price of the stock is $25.08 (C) The current selling price of the stock is $35.07 (D) The current selling price of the stock is $36.72
LUVFINANCE, Inc. is estimating its WACC. It is operating at its optimal capital structure. Its outstanding bonds have a 12 percent coupon, paid semiannually, a current maturity of 17 years, and sell for $1,162. It has 100,000 bonds outstanding. The firm can issue new 20-year maturity semiannual bonds at par but will incur flotation costs of $50 per bond (Hint: the coupon rate on the new bonds = the YTM on existing bonds). The firm could sell, at par, $100 preferred stock that pays a 12 percent annual dividend that is currently selling for $120. The firm currently has 1,000,000 shares of preferred stock outstanding. Rollins' beta is 1.34, the risk-free rate is 1.77 percent, and the market risk premium is 6 percent. The common stock currently sells for $100 a share and there are 5,000,000 shares outstanding. The firm's marginal tax rate is 40 percent. What is the WACC?

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