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FIN515 WEEK4 EXAM PROBLEMS

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Question;(7?2) Constant;Growth Valuation;Boehm;Incorporated is expected to pay a \$1.50 per share dividend at the end of this;year (i.e., D1 = \$1.50). The dividend is expected to grow at a;constant rate of 7% a year. The required rate of return on the stock, rs;is 15%. What is the value par value of Boehm?s stock?;(7?4) Preferred;Stock Valuation;Nick?s;Enchiladas Incorporated has preferred stock outstanding that pays a dividend of;\$5 at the end of each year. The preferred sells for \$50 a share. What is the;stock?s required rate of return?;(7?5) Nonconstant;Growth Valuation;A;company currently pays a dividend of \$2 per share (D0 = \$2). It is;estimated that the company?s dividend will grow at a rate of 20% per year for;the next 2 years, then at a constant rate of 7% thereafter. The company?s stock;has a beta of 1.2, the risk-free rate is 7.5%, and the market risk premium is;4%. What is your estimate of the stock?s current price?;(9-2) After-Tax;Cost of Debt;LL;Incorporated?s currently outstanding 11% coupon bonds have a yield to maturity;of 8%. LL believes it could issue new bonds at par that would provide a similar;yield to maturity. If its marginal tax rate is 35%, what is LL?s after-tax cost;of debt?;(9-4) Cost;of Preferred Stock with Flotation Costs;Burnwood;Tech plans to issue some \$60 par preferred stock with a 6% dividend. A similar;stock is selling on the market for \$70. Burnwood must pay flotation costs of 5%;of the issue price. What is the cost of the preferred stock?;(9-5) Cost;of Equity: DCF;Summerdahl;Resort?s common stock is currently trading at \$36 a share. The stock is;expected to pay a dividend of \$3.00 a share at the end of the year (D1;= \$3.00), and the dividend is expected to grow at a constant rate of 5% a year.;What is its cost of common equity?;(9-6) Cost;of Equity: CAPM;Booher;Book Stores has a beta of 0.8. The yield on a 3-month T-bill is 4% and the;yield on a 10-year T-bond is 6%. The market risk premium is 5.5%, and the;return on an average stock in the market last year was 15%. What is the estimated;cost of common equity using the CAPM?;(9-7) WACC;Shi;Importer?s balance sheet shows \$300 million in debt, \$50 million in preferred;stock, and \$250 million in total common equity. Shi?s tax rate is 40%, rd;= 6%, rps = 5.8%, and rs = 12%. If Shi has a target;capital structure of 30% debt, 5% preferred stock, and 65% common stock, what;is its WACC?

Paper#49766 | Written in 18-Jul-2015

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