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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
= $0.90; P
0
= $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
0
= $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. expects to earn $3.50 per share during the current year, its expected dividend

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