# Problem 14-1 Calculating Cost of Equity [LO1], finance assignment help

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Problem 14-1 Calculating Cost of Equity [LO1]

The Absolute Zero Co. just issued a dividend of $3.10 per share on its common stock. The company is expected to maintain a constant 6.4 percent growth rate in its dividends indefinitely.

If the stock sells for $62 a share, what is the company’s cost of equity? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

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Problem 14-2 Calculating Cost of Equity [LO1]

The Graber Corporation’s common stock has a beta of 1.6. If the risk-free rate is 6.1 percent and the expected return on the market is 11 percent, what is the company’s cost of equity capital? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

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Problem 14-5 Calculating Cost of Preferred Stock [LO1]

Holdup Bank has an issue of preferred stock with a $6.25 stated dividend that just sold for $99 per share. What is the bank’s cost of preferred stock? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

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Problem 14-6 Calculating Cost of Debt [LO2]

Drogo, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 12 years to maturity that is quoted at 104 percent of face value. The issue makes semiannual payments and has an embedded cost of 10 percent annually.

What is the company’s pretax cost of debt? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Pretax cost of debt %

If the tax rate is 35 percent, what is the aftertax cost of debt? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

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Problem 14-16 Finding the WACC [LO3]

Titan Mining Corporation has 9 million shares of common stock outstanding, 340,000 shares of 6 percent preferred stock outstanding, and 180,000 7.8 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $38 per share and has a beta of 1.50, the preferred stock currently sells for $88 per share, and the bonds have 20 years to maturity and sell for 119 percent of par. The market risk premium is 7.8 percent, T-bills are yielding 3 percent, and the company’s tax rate is 36 percent.

a.

What is the firm’s market value capital structure? (Do not round intermediate calculations. Round your answers to 4 decimal places, e.g., 32.1616.)

Market value weight

Debt

Preferred stock

Equity

b.

If the company is evaluating a new investment project that has the same risk as the firm’s typical project, what rate should the firm use to discount the project’s cash flows? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Discount rate %

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Problem 14-22 Calculating the Cost of Debt [LO2]

Ying Import has several bond issues outstanding, each making semiannual interest payments. The bonds are listed in the following table.

Bond Coupon Rate Price Quote Maturity Face Value

1 5.0 % 104.86 5 years $ 30,000,000

2 6.5 113.52 8 years 25,000,000

3 6.2 112.07 15.5 years 45,000,000

4 5.8 101.31 25 years 40,000,000

If the corporate tax rate is 30 percent, what is the aftertax cost of the company’s debt? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Cost of debt %

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