Exam 11: Calculating the Cost of Capital

Fern has preferred stock selling for 95 percent of par that pays an 8 percent annual coupon. What would be Fern's component cost of preferred stock?

Which of the following makes this a true statement? If the new project does significantly increase the firm's overall risk

OMG Inc. has 4 million shares of common stock outstanding, 3 million shares of preferred stock outstanding, and 5 thousand bonds. If the common shares sell for $17 per share, the preferred shares sell for $126 per share, and the bonds sell for 117 percent of par ($1,000), what weight should you use for preferred stock in the computation of OMG's WACC?

Which of the following statements is correct?

Which of these statements is true regarding divisional WACC?

Which of the following will directly impact the cost of debt?

TAFKAP Industries has 8 million shares of stock outstanding selling at $17 per share and an issue of $20 million in 7.5 percent, annual coupon bonds with a maturity of 15 years, selling at 109 percent of par ($1,000). If TAFKAP's weighted average tax rate is 34% and its cost of equity is 12.5 percent, what is TAFKAP's WACC?

Which of the following is a reason why the divisional cost of capital approach may cause problems if new projects are assigned to the wrong division?

Carrie D's has 6 million shares of common stock outstanding, 2 million shares of preferred stock outstanding, and 10 thousand bonds. If the common shares are selling for $15 per share, the preferred shares are selling for $28 per share, and the bonds are selling for 109 percent of par, what would be the weight used for equity in the computation of Carrie D's WACC?

Which of the following makes this a true statement? Ideally, when searching for a beta for a new line of business

CJ Co. stock has a beta of 0.9, the current risk-free rate is 5.6, and the expected return on the market is 13 percent. What is CJ Co's cost of equity?

Which of these makes this a true statement? When determining the appropriate weights used in calculating a WACC, it should reflect

Which of the following statements is correct?

TJ Industries has 7 million shares of common stock outstanding with a market price of $20.00 per share. The company also has outstanding preferred stock with a market value of $10 million, and 100,000 bonds outstanding, each with face value $1,000 and selling at 95 percent of par value. The cost of equity is 12 percent, the cost of preferred stock is 10 percent, and the cost of debt is 6.45 percent. If TJ's tax rate is 34 percent, what is the WACC?

Bill's Boards has 20 million shares of common stock outstanding, 4 million shares of preferred stock outstanding, and 20 thousand bonds. If the common shares are selling for $30 per share, the preferred shares are selling for $17 per share, and the bonds are selling for 96 percent of par, what would be the weight used for debt in the computation of Bill's WACC?

FarCry Industries, a maker of telecommunications equipment, has 6 million shares of common stock outstanding, 1 million shares of preferred stock outstanding, and 10 thousand bonds. If the common shares are selling for $27 per share, the preferred shares are selling for $15 per share, and the bonds are selling for 119 percent of par ($1,000), what weight should you use for debt in the computation of FarCry's WACC?

Apple's 9 percent annual coupon bond has 10 years until maturity and the bonds are selling in the market for $890. The firm's tax rate is 36 percent. What is the firm's after-tax cost of debt?

Solar Shades has 8 million shares of common stock outstanding, 4 million shares of preferred stock outstanding, and 10 thousand bonds. If the common shares are selling for $13 per share, the preferred shares are selling for $30 per share, and the bonds are selling for 105 percent of par, what would be the weight used for equity in the computation of Solar Shades' WACC?

FDR Industries has 50 million shares of stock outstanding selling at $30 per share and an issue of $200 million in 9.5 percent, annual coupon bonds with a maturity of 10 years, selling at 105 percent of par ($1,000). If FDR's weighted average tax rate is 28 percent and its cost of equity is 16 percent, what is FDR's WACC?

Paper Exchange has 10 million shares of common stock outstanding, 5 million shares of preferred stock outstanding, and 100 thousand bonds. If the common shares are selling for $25 per share, the preferred shares are selling for $10 per share, and the bonds are selling for 98 percent of par, what would be the weight used for preferred stock in the computation of Paper's WACC?