Cost of Capital 10

Cost of Capital 10 - A. 15.30% B. 14.90% C. 15.10% D....

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Old Exam Questions - Cost of Capital Page 10 of 27 Pages 13% for up to an additional $2,000,000 of new common stock. 10. What is the weighted average cost of capital for the very last dollar to be raised? A. 9.60% B. 9.20% C. 9.40% D. 9.50% E. 9.30% 11. What is the weighted average cost of capital for the entire $10,000,000 to be raised for the expansion? A. 7.918% B. 8.318% C. 8.418% D 8.118% E. 8.218% 12. Your company’s stock currently has a price of $50 per share and is expected to pay a year-end dividend of $4.00 per share (D 1 = $4.00). The dividend is expected to grow at a constant rate of 6 percent per year. The company has insufficient retained earnings to fund capital projects and must, therefore, issue new common stock. The new stock has an estimated flotation cost of $7 per share. Determine the company's cost of equity capital.
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Unformatted text preview: A. 15.30% B. 14.90% C. 15.10% D. 15.70% E. 15.50% 13. Your companys CFO is interested in estimating the company's weighted average cots of capital (WACC) and has collected the following information: The company has bonds outstanding that mature in 18 years with an annual coupon of 7.5 percent (the bond pays $75 on an annual basis). The bonds have a face value of $1,000 and sell in the market today for $1,120, giving a before-tax cost of debt of 6.36145%. The risk-free rate is 3 percent The market risk premium is 5 percent The stock's beta is 1.2 The company's tax rate is 40 percent The company's target capital structure consists of 60 percent equity and 40 percent debt The company uses the CAPM to estimate the cost of equity and does not include flotation costs as part of its cost of capital it uses the cost of retained earnings....
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