examplewacc - on 30 year U.S Treasury bonds is 5(r Rf and...

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Examples Cost of Capital Title: Cost of Debt 1. Belton is issuing a $1,000 par value bond that pays 7 percent annual interest and mature in 15 years. Investors are expected to pay $958 for the bond. The company is in a 40 percent tax bracket. What will be the firm’s after tax cost of debt on the bond? Title: Cost of Preferred Stock 2. The preferred stock of Walter Industries sells for $36 and pays $2.50 in dividends. The net price of the security after issuance costs is 32.50. What is the cost of capital for the preferred stock? Title: Cost of Internal Equity 3. ABC common stock is currently selling for $21.50. Dividends paid last year were $0.70. The dividend growth rate is 15percent. What is the internal cost of equity? 4. Pony Corp is undertaking a capital budgeting analysis. The firm’s beta is 1.5. The rate
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Unformatted text preview: on 30 year U.S. Treasury bonds is 5% (r Rf ), and the return on the S&P 500 index is 12%. What is the cost of retained earnings? r i = r Rf + (r m – r Rf ) b Title: Cost of External Equity 5. The company just paid dividend of $2.0 per share and expected to grow at 10 percent. This common stock is currently selling for $60. What is the company’s cost of equity using constant growth model (Gordon growth model)? If flotation cost is 10% of price, then what is the cost of equity? Title: Weighted Average Cost of Capital 6. The target capital structure for KM is 40% stock, 10 % preferred stock, and 50% debt. If the cost of equity is 18 percent, the cost of preferred stock is 10 percent, and the before tax cost of debt is 8 percent, and the tax rate is 40 percent, what is KM’s WACC?...
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