Chapter 12 Pages 421 - 7 Its tax rate is 35 What is...

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Chapter 12 Pages 421-422 1. What does the WACC measure? 2. Why are market-based weights important? 3. Why is the coupon rate of existing debt irrelevant for finding the cost of debt capital? 4. Why is it easier to determine the costs of preferred stock and of debt than it is to determine the cost of common equity? 6.Under what assumptions can the WACC be used to value a project? 9.What is the right way to adjust for the costs of raising external financing? PROBLEM 5. Laurel, Inc., has debt outstanding with a coupon rate of 60% and a yield to maturity of
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Unformatted text preview: 7%. Its tax rate is 35%. What is Laurel’s effective (after-tax) cost of debt? 6. Dewyco has preferred stock trading at $50 per share. The next preferred divided of $4 is due in one year . What is Dewyco’s cost of capital for preferred stock? 7. Steady Company’s stock has a beta of 0.20. If the risk-free rate is 6% and the market risk premium is 7%, what is an estimate of Steady Company’s cost of equity?...
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