This case assignment is focused on Bond valuation and stock valuation concepts and
capital structure is 35% debt, 10% preferred, and 55% common equity. The interest
rate on new debt is 6.50%, the yield on the preferred is 6.00%, the cost of
common from retained earnings is 11.25%, and the tax rate is 40%. The firm will not be issuing any new common
stock. What is Quigley’s WACC?
cost of common equity. You obtained the
following data: D1 = $1.75; P0
= $42.50; g = 7.00% (constant); and F = 5.00%.
What is the cost of equity raised by selling new common stock?
estimate its cost of common equity. You
have obtained the following data: D0
= $0.85; P0 = $22.00; and g = 6.00% (constant). The CEO thinks, however, that the stock price
is temporarily depressed, and that it will soon rise to $40.00. Based on the DCF approach, by how much would
the cost of common from retained earnings change if the stock price changes as
the CEO expects?
current market value of $27 million. The balance sheet also shows that the company has 10 million shares of stock, and the stock has a book value per share of $5.00. The current stock price is $20.00 per share, and stockholders’ required rate of return, rs, is 12.25%.
The company recently decided that its target capital structure should have 35% debt, with the balance being common equity. The tax rate is 40%. Calculate WACCs based on book, market, and target capital structures.
conditions the choice of IRR vs. NPV will have no effect on the value gained or lost.
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