10 Case model

# 10 Case model - RF RP M r S D 1 r s PART F What is the...

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10 Case model 3/22/2010 7:08 2/17/2006 Chapter 10. The Cost of Capital PART B What is the market interest rate on Coleman’s debt and its component cost of debt? Coupon rate 12% Coupons per year 2 Years to Maturity 15 Price \$1,153.72 Face value \$1,000 Tax rate 40% N 30 PV \$1,153.72 PMT \$60 FV \$1,000 10.0% 6.0% PART C (1) What is the firm’s cost of preferred stock? Nominal dividend rate 10% Dividends per year 4 Par value \$100 Price \$111.10 9.00% PART D (2) What is Coleman’s estimated cost of common equity using the CAPM approach? β 1.2 7% 6% 14.20% PART E What is the estimated cost of common equity using the DCF approach? Price \$50 Current dividend \$4.19 Constant growth rate 5% \$4.40 13.80% This spreadsheet model is designed to be used in conjunction with the chapter's integrated case and the related PowerPoint slide presentation. B-T r d A-T r d r p r

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Unformatted text preview: RF RP M r S D 1 r s PART F What is the bond-yield-plus-risk-premium estimate for Coleman’s cost of common equity? "Bond yield + RP" premium 4% 14.00% PART G METHOD ESTIMATE CAPM 14.20% DCF 13.80% 14.00% Average 14.00% PART I % Flotation cost 15% A-F proceeds from issue \$42.50 15.35% PART J What is Coleman’s overall, or weighted average, cost of capital (WACC)? Ignore flotation costs. 30% 6.00% 10% 9.00% WACC = 11.10% 60% 14.00% k s = What is your final estimate for r s ? r d + RP (2) Coleman estimates that if it issues new common stock, the flotation cost will be 15%. Coleman incorporates the flotation costs into the DCF approach. What is the estimated cost of newly issued common stock, considering the flotation cost? r s w d A-T r d w p r p w s r s...
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10 Case model - RF RP M r S D 1 r s PART F What is the...

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