Copy of FCF 9th edition Chapter 14

# Copy of FCF 9th edition Chapter 14 - Chapter 14 Problems...

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Chapter 14 Problems 1-26 Input boxes in tan Output boxes in yellow Given data in blue Calculations in red Answers in green NOTE: Some functions used in these spreadsheets may require that the "Analysis ToolPak" or "Solver Add-In" be installed in Excel. To install these, click on the Office button then "Excel Options," "Add-Ins" and select "Go." Check "Analyis ToolPak" and "Solver Add-In," then click "OK."

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Chapter 14 Question 1 Input Area: Dividend per share \$2.40 Growth rate 5.50% Stock price \$52 Output Area: Cost of equity 10.37%
Chapter 14 Question 2 Input Area: Beta 1.05 Risk-free rate 5.3% Market return 12% Output Area: Cost of equity 12.34%

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Chapter 14 Question 3 Input Area: Beta 0.85 Market risk premium 8.0% T-bill rate 5.0% Dividend per share \$1.60 Growth rate 6% Stock price \$37 Output Area: 11.80% 10.58% 11.19% R E : CAPM R E : DCF R E
Chapter 14 Question 4 Input Area: Current dividend \$1.43 Dividends: Year 1 \$1.05 Year 2 \$1.12 Year 3 \$1.19 Year 4 \$1.30 Stock price \$45.00 Output Area: Arithmetic average: 6.67% 6.25% 9.24% 10.00% g 8.04% 11.47% Geometric average: Geometric growth 8.03% 11.46% g 1 g 2 g 3 g 4 R E R E

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Chapter 14 Question 5 Input Area: Dividend per share \$6.00 Stock price \$96.00 Output Area: 6.25% R P
Chapter 14 Question 6 Input Area: Settlement 01/01/08 Maturity 01/01/23 Price (% of par) 107 Coupon rate 7% Payments per year 2 Tax rate 35% Output Area: Pretax cost 6.27% Aftertax cost of debt 4.08%

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Chapter 14 Question 7 Input Area: Settlement 01/01/08 Maturity 01/01/31 Coupon rate 8% Price (% of par) 95 Payments per year 2 Tax rate 35% Output Area: a. Pretax cost of debt 8.50% b. Aftertax cost of debt 5.52% c. The after-tax rate is more relevant because that is the actual cost to the company.
Chapter 14 Question 8 Input Area: Book value of debt issue (1) \$80,000,000 Second issue Settlement date 01/01/08 Maturity date 01/01/15 Annual coupon rate 0% Coupons per year 2 Bond price (% of par) 61 Tax rate 35% Book value debt issue (2) \$35,000,000 Output Area: Book value of debt \$115,000,000 Market value of first bond \$76,000,000 Market value of second bond \$21,350,000 Market value of debt \$97,350,000 Pretax cost of second issue 7.188% Aftertax cost of second issue 4.672% Aftertax cost of debt 5.34%

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Chapter 14 Question 9 Input Area: Common stock 60% Preferred stock 5% Debt 35% Cost of equity 14% Cost of preferred stock 6% Cost of debt 8% Tax rate 35% Output Area: a. WACC 10.52% b. Since interest is tax deductible and dividends dividends are not, we must look at the aftertax cost of debt, 5.20% Hence, on an aftertax basis, debt is cheaper than the preferred stock.
Chapter 14 Question 10 Input Area: Debt-to-equity ratio 0.65 Cost of equity 15% Cost of debt 9% Tax rate 35% Output Area: WACC 11.40%

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