Chap 9 problem set

Download Document
Showing pages : 1 - 2 of 3
This preview has blurred sections. Sign up to view the full version! View Full Document
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Cost of Capital Problem Set Additional problems 1 . You were hired as a consultant to Giambono Company, whose target capital structure is 40% debt, 15% preferred, and 45% common equity. The after-tax cost of debt is 6.00%, the cost of preferred is 7.50%, and the cost of retained earnings is 12.75%. The firm will not be issuing any new stock. What is its WACC? 9.26% 2 . To help finance a major expansion, Castro Chemical Company sold a noncallable bond several years ago that now has 20 years to maturity. This bond has a 9.25% annual coupon, paid semiannually, sells at a price of $1,075, and has a par value of $1,000. If the firm's tax rate is 40%, what is the component cost of debt for use in the WACC calculation? 5.08% 3 . Assume that Kish Inc. hired you as a consultant to help estimate its cost of capital. You have obtained the following data: D = $0.90; P = $27.50; and g = 7.00% (constant). Based on the DCF approach, what is the cost of equity from retained earnings? 10.5% 4 . Trahan Lumber Company hired you to help estimate its cost of capital. You obtained the following data: D 1 = $1.25; P = $27.50; g = 5.00% (constant); and F = 6.00%. What is the cost of equity raised by selling new common stock? 9.84% 5 . Weaver Chocolate Co. ...
View Full Document