# Diff m 53 hilliard corp wants to calculate its

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Diff: M53.HilliardCorp.wantstocalculateitsweightedaveragecostofcapital(WACC).The company’s CFO has collected the following information:Thecompany’slong-termbondscurrentlyofferayieldtomaturityof8percent.The company’s stock price is \$32 a share (P0= \$32).The company recently paid a dividend of \$2 a share (D0= \$2.00).The dividend is expected to grow at a constant rate of 6 percent a year(g = 6%).Thecompanypaysa10percentflotationcostwheneveritissuesnewcommon stock (F = 10 percent).Thecompany’stargetcapitalstructureis75percentequityand25percent debt.The company’s tax rate is 40 percent.Thefirmwillbeabletouseretainedearningstofundtheequityportion of its capital budget.What is the company’s WACC?a. 10.67%b. 11.22%c. 11.47%d. 12.02%e. 12.56%lOMoARcPSD|16538345
WACCAnswer: cDiff: M54.JohnsonIndustriesfinancesitsprojectswith40percentdebt,10percentpreferred 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 risk-free rate is 6.57 percent.The market risk premium is 5 percent.Johnson Industries’ beta is equal to 1.3.Assume that the firm will be able to use retained earnings to fund theequity portion of its capital budget.The company’s tax rate is 30 percent.What is the company’s weighted average cost of capital (WACC)?Diff: MlOMoARcPSD|16538345
55.Helms Aircraft has a capital structure that consists of 60 percent debt and40 percent common stock.The firm will be able to use retained earnings tofund the equity portion of its capital budget.The company recently issuedbondswithayieldtomaturityof9percent.Therisk-freerateis6percent, the market risk premium is 6 percent, and Helms’ beta is equal to1.5.Ifthecompany’staxrateis35percent,whatisthecompany’sweighted average cost of capital (WACC)?
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Term
Spring
Professor
N/A
Tags
Dividend yield, Weighted average cost of capital