Finance Hw

Words 1636
Pages 7
1. To help finance a major expansion, Castro Chemical Company sold a noncallable bond several years ago that now has 20 years to maturity. This bond has a 9.25% annual coupon, paid semiannually, sells at a price of \$1,075, and has a par value of \$1,000. If the firm's tax rate is 40%, what is the component cost of debt for use in the WACC calculation?

a. 4.35%
b. 4.58%
c. 4.83%
d. 5.08%
e. 5.33%

2 Several years ago the Jakob Company sold a \$1,000 par value, noncallable bond that now has 20 years to maturity and a 7.00% 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 WACC calculation?

a. 4.28%
b. 4.46%
c. 4.65%
d. 4.83%
e. 5.03%

3 Assume that Kish Inc. hired you as a consultant to help estimate its cost of common equity. You have obtained the following data: D0 = \$0.90; P0 = \$27.50; and g = 7.00% (constant). Based on the DCF approach, what is the cost of common from retained earnings?

a. 9.29%
b. 9.68%
c. 10.08%
d. 10.50%
e. 10.92%

4 Rivoli Inc. hired you as a consultant to help estimate its cost of common equity. You have been provided with the following data: D0 = \$0.80; P0 = \$22.50; and g = 8.00% (constant). Based on the DCF approach, what is the cost of common from retained earnings?

a. 10.69%
b. 11.25%
c. 11.84%
d. 12.43%
e. 13.05%

5 Weaver Chocolate Co. expects to earn \$3.50 per share during the current year, its expected dividend payout ratio is 65%, its expected constant dividend growth rate is 6.0%, and its common stock currently sells for \$32.50 per share. New stock can be sold to the public at the current price, but a flotation cost of 5% would be incurred. What would be the cost of equity from…...

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