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FINN 3226 Homework 2




FINN 3226;Homework 2;1. A 12-year, 12% semiannual coupon, $1,000 par value bond is selling for $1,200. It can be called after 6 years at $1,050.;a) Is the firm going to call the bond? Are we going to have Yield to call (YTC) or Yield to maturity (YTM) on the bond?;b) How much is the YTC or YTM?;2. A stock has a Non-constant growth of 20% for Year 0 to Year 1, 25% for Year 1 to Year 2, 15% for Year 2 to Year 3, and then long-run constant g = 6%. Do = $2. What is the current stock price? Required rate of return = 12%;3. The preferred stock pays a dividend of 10% on a par value of $110. The required rate of return is 8%. What is the value of the preferred stock of the firm?;4. The firm ABZ has D0 = $5, P0 = $50, g = 5%, Flotation cost =2.23%. What is the cost of retained earnings for the firm?;5. A firm raises $2 Million through debt, $3 Million through common stock and $500,000 through preferred stock. The cost of debt is 8%, the cost of preferred stock is 9% and cost of common stock is 11%. The firm is in the 35% tax bracket. What is the Weighted Average Cost of Capital (WACC) for the firm?


Paper#30859 | Written in 18-Jul-2015

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