Structured Finance Solutions Problems

Structured Finance Solutions Problems - Chapter 10 Problems...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 10 Problems 2. LL Incorporated's currently outstanding 11% coupon bonds have a yield to maturity of 8%. LL believes it could issue at par new bonds that would provide a similar yield to maturity. If its marginal tax rate is 35%, what is LL's after-tax cost of debt? r d (1 - T) = 0.08(0.65) = 5.2%. 4. Burnwood Tech plans to issue some $60 par preferred stock with a 6% dividend.</p><p>The stock is selling on the market for $70.00, and Burnwood must pay flotation costs of 5% of the market price. What is the cost of the preferred stock? r ps = ) 05 . 0 1 ( 00 . 70 $ ) 06 . 0 ( 60 $ - = 50 . 66 $ 60 . 3 $ = 5.41%. 5. Summerdahl Resorts' common stock is currently trading at $36 a share. The stock is expected to pay a dividend of $3.00 a share at the end of the year (D1 _ $3.00), and the dividend is expected to grow at a constant rate of 5% a year. What is the cost of common equity? 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%. 6. Booher Book Stores has a beta of 0.8. The yield on a 3-month T-bill is 4% and the yield on a 10-year T- bond is 6%. The market risk premium is 5.5%, but the stock market return in the previous years was 15%.
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern