Chapter 12 - Cost of Capital
53. The Cracker Mill has a beta of 0.97, a dividend growth rate of 3.2 percent, a stock price of $33 a share, and an expected annual dividend of $1.06 per share next year. The market rate of return is 11.2 percent and the risk-free rate is 3.7 percent. What is the firm's cost of equity? A. 7.74 percent B. 8.69 percent C. 9.30 percent D. 9.72 percent E. 10.01 percent
54. The market rate of return is 14.8 percent and the risk-free rate is 4.45 percent. Galaxy Co. has 54 percent more systematic risk than the overall market and has a dividend growth rate of 5.5 percent. The firm's stock is currently selling for $39 a share and has a dividend yield of 3.6 percent. What is the firm's cost of equity? A. 14.73 percent B. 15.31 percent C. 15.82 percent D. 16.28 percent E. 16.73 percent
55. Appalachian Mountain Goods has paid increasing dividends of $.0.12, $0.18, $0.20, and $0.25 a share over the past four years, respectively. The firm estimates that future increases in its dividends will be equal to the arithmetic average growth rate over these past four years. The stock is currently selling for $12.60 a share. The risk-free rate is 3.2 percent and the market risk premium is 9.1 percent. What is the cost of equity for this firm if its beta is 1.26? A. 14.34 percent B. 16.91 percent C. 19.78 percent D. 22.96 percent E. 24.03 percent
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Chapter 12 - Cost of Capital
56. Winter Wear, Inc. has 6 percent bonds outstanding that mature in 13 years. The bonds pay interest semiannually and have a face value of $1,000. Currently, the bonds are selling for $993 each. What is the firm's pre-tax cost of debt? A. 5.97 percent B. 6.08 percent C. 6.14 percent D. 6.31 percent E. 6.40 percent
57. Four years ago, the Moore Co. issued 15-year, 7.5 percent semiannual coupon bonds at par. Today, the bonds are quoted at 101.6. What is this firm's pre-tax cost of debt? A. 6.97 percent B. 7.08 percent C. 7.29 percent D. 7.33 percent E. 7.39 percent
58. Birds and Yards has 10-year bonds outstanding that carry an annual coupon of 8 percent. The bonds mature in 7 years and are currently priced at 108.4 percent of face value. What is the firm's pre-tax cost of debt? A. 6.47 percent B. 6.82 percent C. 7.34 percent D. 7.70 percent E. 8.23 percent
59. Catnip Stores has a $20 million bond issue outstanding that currently has a market value of $18.6 million. The bonds mature in 6.5 years and pay semiannual interest payments of $30 each. What is the firm's pre-tax cost of debt? A. 6.99 percent B. 7.37 percent C. 7.58 percent D. 7.74 percent E. 7.80 percent
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Chapter 12 - Cost of Capital
60. Hi Tech Products has 35,000 bonds outstanding that are currently quoted at 102.3. The bonds mature in 11 years and carry a 9 percent annual coupon. What is the firm's aftertax cost of debt if the applicable tax rate is 35 percent? A. 4.47 percent B. 4.79 percent C. 5.63 percent D. 5.98 percent E. 6.31 percent
61. Major Manufacturing issued 30-year, 8.5 percent semiannual bonds 6 years ago. The bonds currently sell at 101 percent of face value. What is the firm's aftertax cost of debt if the tax rate is 35 percent? A. 5.46 percent B. 5.62 percent C. 5.76 percent D. 6.59 percent E. 6.83 percent
62. Great Lakes Packing has two bond issues outstanding. The first issue has a coupon rate of 9 percent, matures in 3 years, has a total face value of $6 million, and is quoted at 108 percent of face value. The second issue has a 7.5 percent coupon, matures in 16 years, has a total face value of $18 million, and is quoted at 97 percent of face value. Both bonds pay interest semiannually. What is the firm's weighted average aftertax cost of debt if the tax rate is 35 percent?
A. 4.78 percent B. 5.12 percent C. 5.63 percent D. 5.95 percent E. 6.08 percent
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Chapter 12 - Cost of Capital
63. The 7.5 percent preferred stock of Home Town Brews is selling for $43 a share. What is the firm's cost of preferred stock if the tax rate is 34 percent and the par value per share is $100? A. 14.47 percent B. 15.92 percent C. 16.17 percent D. 16.52 percent E. 17.44 percent
64. The 7.5 percent preferred stock of Tanners Floors is selling for $57 a share. What is the firm's cost of preferred stock if the tax rate is 35 percent and the par value per share is $100? A. 11.69 percent B. 12.81 percent C. 13.16 percent D. 13.79 percent E. 14.14 percent
65. The preferred stock of Pollard's Pools pays an annual dividend of $5.50 a share and sells for $42 a share. The tax rate is 34 percent. What is the firm's cost of preferred stock? A. 12.28 percent B. 13.10 percent C. 15.07 percent D. 15.59 percent E. 16.47 percent
66. Christie's Train Shoppe has 15,000 shares of common stock outstanding at a price of $11 a share. It also has 2,000 shares of preferred stock outstanding at a price of $34 a share. There are 50 bonds outstanding that have a 7.5 percent semiannual coupon. The bonds mature in 6 years, have a face value of $1,000, and sell at 96 percent of par. What is the capital structure weight of the preferred stock? A. 20.50 percent B. 21.68 percent C. 23.15 percent D. 24.20 percent E. 26.23 percent
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Chapter 12 - Cost of Capital
67. Chesterfield and Weston has 55,000 shares of common stock outstanding at a price of $31 a share. It also has 3,000 shares of preferred stock outstanding at a price of $62 a share. The firm has 8 percent, 12-year bonds outstanding with a total face value of $400,000. The bonds are currently quoted at 101.2 percent of face and pay interest semiannually. What is the capital structure weight of the firm's debt if the tax rate is 35 percent? A. 14.49 percent B. 15.20 percent C. 15.67 percent D. 16.84 percent E. 17.63 percent
68. Claus Enterprises has 174,000 shares of common stock outstanding at a current price of $46 a share. The firm also has two bond issues outstanding. The first bond issue has a total face value of $250,000, pays 7.7 percent interest annually, and currently sells for 102.5 percent of face value. The second bond issue consists of 5,000 bonds that are selling for $993 each. These bonds pay 6.5 percent interest annually and mature in 8 years. The tax rate is 34 percent. What is the capital structure weight of the firm's common stock? A. 47.78 percent B. 51.39 percent C. 55.50 percent D. 60.52 percent E. 71.86 percent
69. Sunshine Cruises issues only common stock and coupon bonds. The firm has a debt-equity ratio of 0.55. The cost of equity is 16.3 percent and the pre-tax cost of debt is 9.9 percent. What is the capital structure weight of the firm's equity if the firm's tax rate is 34 percent? A. 46.75 percent B. 49.97 percent C. 52.93 percent D. 61.08 percent E. 64.52 percent
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