fm10 3 - 10-6 r s = r RF b i(RP M = 0.06 0.8(0.055 = 10.4...

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SOLUTIONS TO END-OF-CHAPTER PROBLEMS 10-1 a. r d (1 - T) = 13%(1 - 0) = 13.00%. b. r d (1 - T) = 13%(0.80) = 10.40%. c. r d (1 - T) = 13%(0.65) = 8.45%. 10-2 r d (1 - T) = 0.08(0.65) = 5.2%. 10-3 V ps = $50; D ps = $4.50; F = 0%; r ps = ? r ps = ) F 1 ( V D ps ps = ) 0 . 0 1 ( 50 $ 50 . 4 $ = 9%. 10-4 r ps = ) 05 . 0 1 ( 00 . 70 $ ) 06 . 0 ( 60 $ = 50 . 66 $ 60 . 3 $ = 5.41%. 10-5 P 0 = $36; D 1 = $3.00; g = 5%; r s = ? r s = 0 1 P D + g = ($3.00/$36.00) + 0.05 = 13.33%.
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Unformatted text preview: 10-6 r s = r RF + b i (RP M ) = 0.06 + 0.8(0.055) = 10.4%. 10-7 30% Debt; 5% Preferred Stock; 65% Equity; r d = 6%; T = 40%; r ps = 5.8%; r s = 12%. WACC = (w d )(r d )(1 - T) + (w ps )(r ps ) + (w ce )(r s ) WACC = 0.30(0.06)(1-0.40) + 0.05(0.058) + 0.65(0.12) = 9.17%. Answers and Solutions: 10 - 3...
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