Johnson_II_Sheree_BUS300_Assignment_7

# Johnson_II_Sheree_BUS300_Assignment_7 - r= 8 10-7 The...

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Sheree M. Johnson II September 26, 2010 BUS300 - Financial Management (Q4 2010) Please read Chapter 10 and complete: Problems: 10-1: The Heuser Company's currently outstanding 10 percent coupon bonds have a yield to maturity of 12 percent. Heuser believes it could issue at par new bonds that would provide a similar yield to maturity. If its marginal tax rate is 35 percent, what is Heuser's after tax cost of debt? The new bonds would have a coupon rate of 12% to be issued at par. The after tax cost of debt = Before tax cost x (1-tax rate) After tax cost = 12% X (1-0.35) = 7.8% 10-2: Tunney Industries can issue perpetual preferred stock at a price of \$ 47.50 a share. The stock would pay a constant annual dividend of \$ 3.80 a share. What is the company's cost of preferred stock, rp? PV of a perpetuity = A/r 47.50 = 3.80/r
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Unformatted text preview: r= 8% 10-7: The Evanec Company's next expected dividend, D1, is \$ 3.18; its growth rate is 6%; and its common stock now sells for \$ 36.00. New stock ( external equity) can be sold to net \$ 32.40 per share. a. What is Evanec's cost of retained earnings, rs? b. What is Evanec's percentage flotation cost, F? c. What is Evanec's cost of new common stock, re? 10-9: The Patrick Company's cost of common equity is 16 percent, its before-tax cost of debt is 13 percent, and its marginal tax rate is 40 percent. The stock sells at book value. Using the following balance sheet, calculate Patrick's WACC. Assets Liabilities and Equity Cash \$120 Accounts receivable 240 Inventories 360 Long Term Debt \$1,152 Plant and Equipment, net 2,160 Common Equity \$1,728 Total assets \$2,880 Total liability &amp;amp; equity \$2,880...
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## This note was uploaded on 01/16/2011 for the course BUS 300 taught by Professor Wendyachilles during the Spring '10 term at Stratford.

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