An analyst has collected the following information regarding Christopher Co The

An analyst has collected the following information

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9. An analyst has collected the following information regarding Christopher Co.: The company’s capital structure is 70 percent equity, 30 percent debt. The yield to maturity on the company’s bonds is 9 percent. The company’s year-end dividend is forecasted to be $0.80 a share. The company expects that its dividend will grow at a constant rate of 9 percent a year. The company’s stock price is $25. The company’s tax rate is 40 percent. The company anticipates that it will need to raise new common stock this year. Its investment bankers anticipate that the total flotation cost will equal 10 percent of the amount issued. Assume the company accounts for flotation costs by adjusting the cost of capital. Given this information, calculate the company’s WACC.A. 10.41%B. 12.56%C. 10.78%D. 13.55%E. 9.29%10. The common stock of Anthony Steel has a beta of 1.20. The risk-free rate is 5 percent and the market risk premium (Rm - Rrf) is 6 percent. What is the company’s cost of common stock,
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rs?11. Martin Corporation's common stock is currently selling for $50 per share. The current dividend is $2.00 per share. If dividends are expected to grow at 6 percent per year, then what is the firm's cost of common stock?12. Grateway Inc. has a weighted average cost of capital of 11.5percent. Its target capital structure is 55 percent equity and 45 percent debt. The company has sufficient retained earnings tofund the equity portion of its capital budget. The before-tax cost of debt is 9 percent, and the company’s tax rate is 30 percent. If the expected dividend next period (D1) and current stock price are $5 and $45, respectively, what is the company’s growth rate?13. Johnson Industries finances its projects with 40 percent debt, 10 percent preferred stock, and 50 percent common stock.The company can issue bonds at a yield to maturity of 8.4 percent. The cost of preferred stock is 9 percent. The company'scommon stock currently sells for $30 a share. The company's dividend is currently $2.00 a share (D0 = $2.00), and is expected to grow at a constant rate of 6 percent per year.Assume that the flotation cost on debt and preferred stock is zero, and no new stock will be issued. The company’s tax rate is30 percent. What is the company’s weighted average cost of capital (WACC)?A. 8.33%B. 9.32%C. 9.79%D. 9.99%
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E. 13.15%
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  • Summer '14
  • Finance, Debt, Weighted average cost of capital

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