The Dybvig Corporationâ€™s common stock has a beta of
1.21. If the risk-free rate is 3.5
percent and the expected return on the market is 11 percent, what is Dybvigâ€™s
cost of equity capital?
Shanken Corp. issued a 30-year, 6.2 percent
semiannual bond 7 years ago. The bond currently sells for 108 percent of its
face value. The companyâ€™s tax rate is 35 percent.
a. What is the pretax cost of debt?
b. What is the aftertax cost of debt?
c. Which is more relevant, the pretax or the
aftertax cost of debt? Why?
Mullineaux Corporation has a target capital structure of 70 percent common stock
and 30 percent debt. Its cost of equity is 13 percent, and the cost of
debt is 6 percent. The relevant tax rate
is 35 percent. What is Mullineauxâ€™s WACC?
Filer Manufacturing has 8.3 million shares of common stock ouanding. The
current share price is $53, and the book value per share is $4. Filer
Manufacturing also has two bond issues outstanding. The first bond issue has a
face value of $70 million and a coupon rate of 7 percent and sells for 108.3
percent of par. The second issue has a face value of $60 million and a coupon
rate of 7.5 percent and sells for 108.9 percent of par. The first issue matures
in 8 years, the second in 27 years.
In the previous problem, suppose the companyâ€™s stock has a beta of 1.2. The risk-free rate is 3.1 percent, and the market risk premium is 7 percent. Assume that the overall cost of debt is the weighted average implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 35 percent. What is the companyâ€™s WACC?
Titan Mining Corporation has 9.3 million shares of
common stock outstanding and 260,000 6.8 percent semiannual bonds outstanding,
par value $1,000 each. The common stock currently sells for $34 per share and
has a beta of 1.20, and the bonds have 20 years to maturity and sell for 104
percent of par. The market risk premium ?s 7 percent, T-bills are yielding 3.5
percent, and Titan
Miningâ€™s tax rate is 35 percent. .
a. What is the firmâ€™s market value
b. If titan Mining is evaluating a new
investment project that has the same risk as the firmâ€™s typical project, what
rate should the firm use to discount the projectâ€™s cash flows?
Given the following information for Huntington Power Co., find the WACC. Assume
the companyâ€™s tax rate is 35 percent.
Debt: 5,000 6 percent coupon bonds
outstanding, $1,000 par value, 25 years to maturity, selling for 105 percent of
par; the bonds make semiannual payments.
Common stock: 175,000 shares
outstanding, selling for $58 per share; the beta is 1.10.
Market: 7 percent market risk premium
and 5 percent risk-free rate.