Exam 11: Calculating the Cost of Capital

Diddy Corp.stock has a beta of 1.0,the current risk-free rate is 5 percent,and the expected return on the market is 15.5 percent.What is Diddy's cost of equity?

Any debt and preferred stock components of capital should:

Which of the following statements is correct?

Oberon Inc.has a $20 million ($1,000 face value)10-year bond issue selling for 99 percent of par that pays an annual coupon of 7.25 percent.What would be Oberon's before-tax component cost of debt?

ADK Industries common shares sell for $40 per share.ADK expects to set their next annual dividend at $1.75 per share.If ADK expects future dividends to grow at 7 percent per year,indefinitely,the current risk-free rate is 4 percent,the expected rate on the market is 11 percent,and the stock has a beta of 1.2,what should be the best estimate of the firm's cost of equity?

Which of these are fees paid by firms to investment bankers for issuing new securities?

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?

Suppose a new project was going to be financed partially with retained earnings.What flotation costs should you use for retained earnings?

A firm uses only debt and equity in its capital structure.The firm's weight of equity is 70 percent.The firm's cost of equity is 13 percent and it has a tax rate of 30 percent.If the firm's WACC is 11 percent,what is the firm's before-tax cost of debt?

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

Explain how the weights of each security are determined for 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?

When calculating the component cost of equity,what two ways can it be calculated? Which way is better and why?

Town Crier has 10 million shares of common stock outstanding,2 million shares of preferred stock outstanding,and 10 thousand bonds.If the common shares are selling for $28 per share,the preferred shares are selling for $15.50 per share,and the bonds are selling for 97 percent of par,what would be the weight used for debt in the computation of Town Crier's WACC?

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 statements is correct?

Which of these statements is true regarding calculating weights for WACC?

Which of the following is a true statement?

FarCry Industries,a maker of telecommunications equipment,has 26 million shares of common stock outstanding,1 million shares of preferred stock outstanding,and 10 thousand bonds.If the common shares sell for $12 per share,the preferred shares sell for $114.50 per share,and the bonds sell for 98 percent of par ($1,000),what weight should you use for preferred stock in the computation of FarCry's WACC?

An objective approach to calculating divisional WACCs would be done by: