Finance

Solution Library


Cost of Capital and Affect of Taxes on Cost of Debt

Question 1. What does the cost of capital represents? What is should reflect? 2. How do taxes affect the cost of debt? Summary This question belongs to finance and discusses about cost of capital and affect of taxes on cost of debt. Word count: 150   ... Read More

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Retained Earnings and Major Cost Incurred in Issuing New Equity

Question 1. What are the retained earnings? Do they have any costs for the firm? 2. What is the major cost incurred in issuing new equity? Summary This question belongs to finance and discusses about retained earnings & cost incurred in issuing new equity. Word count: 194   ... Read More

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Cost of Capital and WACC Representation

Question 1. What does the cost of capital represents? What is should reflect? 2. What does the WACC represents? Summary This question belongs to finance and discusses about cost of capital and WACC. Word count: 150   ... Read More

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Calculating Cost of Preferred Stock for Company

Question A Company’s perpetual preferred stock sells for $102.50 per share, and it pays a $9.50 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 4.00% of the price paid by investors. What is the company's cost of preferred stock? Summary ... Read More

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Calculating Cost of New Equity based on DCF Approach

Question You have been provided with the following data: D1 = $1.30; P0 = $42.50; and g = 7.00% (constant). What is the cost of equity from retained earnings based on the DCF approach? If your company is going to issue new equity, it will incur an additional 6% flotation costs what is the cost of n ... Read More

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Cost of Equity from Retained Earnings

Question You have been provided with the following data: RF = 5.00%; (RM – RF) = 5.00%; and b = 1.15. What is the cost of equity from retained earnings based on the CAPM approach? Summary This question belongs to finance and discusses about calculating cost of equity from retained earnings. ... Read More

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Calculating Cost of Equity from Retained Earnings

Question Suppose your company’s beta is 0.85, the risk free rate is 4.5% while the market return is 12%. What is the cost of equity from retained earnings based on the CAPM? Summary This question belongs to finance and discusses about calculating cost of equity from retained earnings based ... Read More

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Component Cost of Debt for Use in WACC Calculation

Question Several years ago your company sold a $1,000 par value, non-callable bonds that now has 12 years to maturity and a 8.00% annual coupon that is paid semiannually. The bond currently sells for $925, and the company’s tax rate is 40%. What is the component cost of debt for use in the WA ... Read More

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Calculating WACC when the Firm is not Issuing New Stock

Question Your company’s target capital structure is 35% debt, 15% preferred, and 50% common equity. The interest rate on new debt is 7.50%, the yield on the preferred is 7.00%, the cost of retained earnings is 12. 5%, and the tax rate is 40%. The firm will not be issuing any new stock. What i ... Read More

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WACC based on Debt Equity and Tax Rate

Question Suppose that your company just paid a dividend of $1.2; the dividends are expected to grow at a constant rate of 5% indefinitely. Today’s market price/share is $45. Suppose also that your company has some bonds outstanding in the market selling for $1,035. The bonds have 8 years left ... Read More

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Relevant Cost of New Preferred Stock based on Marginal Tax Rate

Question A company will issue preferred stock to finance a new project. The firm's existing preferred stock pays a dividend of $4.00 per share and is selling for $40 per share. Investment bankers have advised that flotation costs on the new preferred issue would be 5% of the selling price. The marg ... Read More

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Calculating Cost of New Common Stock Based on Flotation Expenses

Question A company will issue new common stock to finance an expansion. The existing common stock just paid a $1.50 dividend, and dividends are expected to grow at a constant rate 8% indefinitely. The stock sells for $45, and flotation expenses of 5% of the selling price will be incurred on new sha ... Read More

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