Excel Solutions - Chapter 15

Fundamentals of Corporate Finance Standard Edition

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Chapter 15 Problems 1-23 Input boxes in tan Output boxes in yellow Given data in blue Calculations in red Answers in green
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Chapter 15 Question 1 Input Area: Dividend per share $2.45 Growth rate 6% Stock price $45 Output Area: Cost of equity 11.77%
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Chapter 15 Question 2 Input Area: Beta 1.30 Risk-free rate 4.5% Market return 12% Output Area: Cost of equity 14.25%
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Chapter 15 Question 3 Input Area: Beta 1.15 T-bill rate 4.0% Market risk premium 8% Dividend per share $1.80 Growth rate 5% Stock price $34 Output Area: 13.20% 10.56% 11.88% R E : CAPM R E : DCF R E
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Chapter 15 Question 4 Input Area: Dividend per share $1.22 Stock price $45.00 Dividends: Year 1 $0.78 Year 2 $0.91 Year 3 $0.93 Year 4 $1.00 Output Area: Arithmetic average: 16.67% 2.20% 7.53% 22.00% g 12.10% 15.14% Geometric average: Geometric growth 11.83% 14.86% g 1 g 2 g 3 g 4 R E R E
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Chapter 15 Question 5 Input Area: Dividend per share $6.00 Stock price $92.00 Output Area: 6.52% R P
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Chapter 15 Question 6 Input Area: Settlement 01/01/05 Maturity 01/01/17 Price (% of par) 105 Coupon rate 8% Payments per year 2 Tax rate 35% Output Area: Pretax cost 7.37% Aftertax cost of debt 4.79%
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Chapter 15 Question 7 Input Area: Settlement 01/01/05 Maturity 01/01/28 Price (% of par) 108 Coupon rate 10% Payments per year 2 Tax rate 35% Output Area: a. Pretax cost of debt 9.16% b. Aftertax cost of debt 5.95% c. The after-tax rate is more relevant because that is the actual cost to the company.
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Chapter 15 Question 8 Input Area: Book value of debt issue (1) $20,000,000 Second issue Settlement date 01/01/05 Maturity date 01/01/12 Annual coupon rate 0% Coupons per year 1 Bond price (% of par) 58 Tax rate 35% Book value debt issue (2) $80,000,000 Output Area: Book value of debt $100,000,000 Market value of debt $68,000,000 Pretax cost of second issue 8.093% Aftertax cost of second issue 5.260% Aftertax cost of debt 5.48%
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Chapter 15 Question 9 Input Area: Common stock 50% Preferred stock 5% Debt 45% Cost of equity 16% Cost of preferred stock 7.5% Cost of debt 9% Tax rate 35% Output Area: a. WACC 11.01% b. Since interest is tax deductible and dividends dividends are not, we must look at the aftertax cost of debt, 5.85% Hence, on an aftertax basis, debt is cheaper than the preferred stock.
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Excel Solutions - Chapter 15 - Chapter 15 Problems 1-23...

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