Cost of Equity, WACC

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Can someone please help me figure out these problems... i would really like some help figuring out how to do them not just the answers. 1) Stock in Dragula Industries has a beta of 1.1. The market risk premium is 7 percent, and T-bills are currently yielding 5.00 percent. The company%u2019s most recent dividend was $1.40 per share, and dividends are expected to grow at a 7.0 percent annual rate indefinitely. If the stock sells for $35 per share, what is your best estimate of the company%u2019s cost of equity? 2) Mullineaux Corporation has a target capital structure of 45 percent common stock, 15 percent preferred stock, and 40 percent debt. Its cost of equity is 14 percent, the cost of preferred stock is 5 percent, and the pretax cost of debt is 7 percent. The relevant tax rate is 40 percent. a. What is Mullineaux%u2019s WACC? 8.73 b. What is the aftertax cost of debt? 3)Erna Corp. has 8 million shares of common stock outstanding. The current share price is $87, and the book value per share is $6. Erna Corp. also has two bond issues outstanding. The first bond issue has a face value of $75 million, has a coupon of 10 percent, and sells for 97 percent of par. The second issue has a face value of $50 million, has a coupon of 11 percent, and sells for 105 percent of par. The first issue matures in 25 years, the second in 7 years. a. What are Erna%u2019s capital structure weights on a book value basis? Equity/value_____ Debt/Value______ b. What are Erna%u2019s capital structure weights on a market value basis? Equity/value_____ Debt/Value_____ 4) You are given the following information for Lightning Power Co. Assume the company%u2019s tax rate is 38 percent. Debt: 9,000 7.6 percent coupon bonds outstanding, $1,000 par value, 30 years to maturity, selling for 105 percent of par
the bonds make semiannual payments. Common stock: 480,000 shares outstanding, selling for $66 per share
the beta is 1.09. Preferred stock: 26,000 shares of 4 percent preferred stock outstanding, currently selling for $86 per share. Market: 9 percent market risk premium and 5.60 percent risk-free rate. What is the company's WACC? Jan 17 2014 09:38 AM

 

Solution ID:608969 | This paper was updated on 26-Nov-2015

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