Course Hero Logo

Diff m 53 hilliard corp wants to calculate its

Course Hero uses AI to attempt to automatically extract content from documents to surface to you and others so you can study better, e.g., in search results, to enrich docs, and more. This preview shows page 19 - 22 out of 56 pages.

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
Downloaded by Mida Cute ([email protected])
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)?
Chapter 9 - Page 19Downloaded by Mida Cute ([email protected])
Chapter 9 - Page 20

Upload your study docs or become a

Course Hero member to access this document

Upload your study docs or become a

Course Hero member to access this document

End of preview. Want to read all 56 pages?

Upload your study docs or become a

Course Hero member to access this document

Term
Spring
Professor
N/A
Tags
Corporate Finance, Cost Of Capital, Interest, Dividend yield, Weighted average cost of capital

Newly uploaded documents

Show More

Newly uploaded documents

Show More

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture