eoc_chapter_12

# eoc_chapter_12 - Chapter 12 Problems 1-30 Input boxes in...

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Chapter 12 Problems 1-30 Input boxes in tan Output boxes in yellow Given data in blue Calculations in red Answers in green

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Chapter 12 Question 1 Input Area: Dividend per share \$1.90 Growth rate 6% Stock price \$38.00 Output Area: Cost of equity 11.30%
Chapter 12 Question 2 Input Area: Beta 1.27 Risk-free rate 5% Market return 13% Output Area: Cost of equity 15.16%

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Chapter 12 Question 3 Input Area: Beta 1.20 T-bill rate 5.5% Market risk premium 7% Dividend per share \$2.20 Growth rate 5% Stock price \$36.00 Output Area: R(E) - CAPM 13.90% R(E) - DCF 11.42% R(E) 12.66%
Chapter 12 Question 4 Input Area: Dividend just paid \$1.56 Stock price \$38.00 Dividends: Year 1 \$1.10 Year 2 \$1.20 Year 3 \$1.32 Year 4 \$1.43 Output Area: g(1) 9.09% g(2) 10.00% g(3) 8.33% g(4) 9.09% Average g 9.13% R(E) 13.61%

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Chapter 12 Question 5 Input Area: Dividend per share \$6.50 Stock price \$90.00 Output Area: R(p) 7.22%
Chapter 12 Question 6 Input Area: Settlement date 1/1/02 Maturity date 1/1/09 Annual coupon rate 8.50% Coupons per year 2 Face value (% of par) 100.0 Bond price (% of par) 106.0 Tax rate 38% Output Area: Pretax cost of debt 7.387% Aftertax cost of debt 4.580%

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Chapter 12 Question 7 Input Area: Settlement date 1/1/02 Maturity date 1/1/24 Annual coupon rate 6.00% Coupons per year 2 Face value (% of par) 100.0 Bond price (% of par) 96.0 Tax rate 35% Output Area: a. Pretax cost of debt 6.340% b. Aftertax cost of debt 4.121% c. The aftertax rate is more relevant because that is the actual cost to the company.
Chapter 12 Question 8 Input Area: Book value of debt issue (1) \$30,000,000 Second issue Settlement date 1/1/02 Maturity date 1/1/12 Annual coupon rate 0% Coupons per year 1 Face value (% of par) 100.0 Bond price (% of par) 56.0 Tax rate 35% Book value debt issue (2) \$80,000,000 Output Area: Book value of debt \$110,000,000 Market value of debt \$73,600,000 Pretax cost of second issue 5.970% Aftertax cost of seconf issue 3.880% Company's aftertax cost of debt 3.974%

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Chapter 12 Question 9 Input Area: Common stock weight 65% Preferred stock weight 10% Debt weight 25% Cost of equity 15.00% Cost of preferred stock 6.00% Cost of debt 7.50% Tax rate 35% Output Area: a. WACC 11.57% b. Since interest is tax deductible and dividends are not, we must look at the after-tax cost of debt, which is: 4.88% Hence, on an aftertax basis, debt is cheaper than the preferred stock.
Chapter 12 Question 10 Input Area: Debt-to-equity ratio 0.80 Cost of equity 17% Cost of debt 8% Tax rate 35% Output Area: WACC 11.76%

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Chapter 12 Question 11 Input Area: WACC 12.40% Cost of equity 15% Cost of debt 8% Tax rate 35% Output Area: D/E 0.3611
Chapter 12 Question 12 Input Area: Shares outstanding 9,000,000 Market price per share \$52 Book value per share \$4 Bond (I) par value \$80,000,000 Coupon rate 8.00% % of par 104% Maturity 10 Bond (II) par value \$50,000,000 Coupon rate 7.50% % of par 102% Maturity 6 Output Area: a. BV(E) \$36,000,000 BV(D) \$130,000,000 V \$166,000,000 E/V 0.2169 D/V 0.7831 b. MV(E) \$468,000,000

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## This note was uploaded on 05/01/2009 for the course FINC 106 taught by Professor Dr.nehale during the Spring '09 term at Baptist College of Health Sciences.

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eoc_chapter_12 - Chapter 12 Problems 1-30 Input boxes in...

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