19262559
7-2 , Boehm Incorporated is usually expected to pay a $1. 50 per share dividend at the end on this year (i. e.
, D1 = $1. 50). The dividend is expected to develop at a continuing rate of 7% a year. The requiredrate of returnon the inventory, rs, can be 15%. What is the value per share of Boehm’s share? D1= $1. 50 every share g = seven percent rs= 15% What is the significance of a reveal of Boehm Stock? P^0 = D1 /(rs ” g) P^0 = 1 ) 50/(0. 15-0. 07) P^0 = $18. 75 7-4 , Nick’s Enchiladas Incorporated features preferred inventory outstanding that pays a dividend of $5 by the end of each season. The preferred markets for $50 a reveal.
What is the stock’s essential rate of return? Dividend = $5 Preferred = $50 What is the stock’s essential rate of return ^P 0 = D/rs rs = D/^P 0 rs = 5/50 rs = 0. twelve or 10% 7-5 , A company presently pays a dividend of $2 every share (D0 = $2). It is estimated that the company’s dividend is going to grow for a price of twenty percent per year for 2 years, in that case at a continuing rate of 7% thereafter. The company’s stock has a beta of 1. a couple of, the risk- free charge is six. 5%, and the market risk premium is 4%. What is their estimate of the stock’s current price? D0 = $2. 00 g = twenty percent for a couple of years g sama dengan 7% presently there after Drone = 1 . 2 Rf = six. 5%
RPm = 4% Rs = Rf +(bi* RPm) Rs = 7. 5 +(1. 2*4) Rs = doze. 3 What is the estimate with the stock’s current price? D0 $2. 00 g0 to 1 20. 0% g1 to 2 20. 0% gn 7. 0% rs 12. 3% Season 1 a couple of D1 D2 Expected returns $2. 45 $2. 88 Expected P2 $58. 14 PV of expected payouts $4. forty two PV of expected P2 $46. 12 Expected P0 $50. 53 Problems (p. 371) 9-2 After-Tax Cost of Debt LL Incorporated’s presently outstanding 11% coupon you possess have a yield to maturity of 8%. LL believes it could possibly issue new bonds by par that might provide a similar yield to maturity. If perhaps its limited tax charge is 35%, what is LL’s after-tax cost of debt?
Following Tax cost of debt = rd * (1- texas rate) zero. 08 5. (1 , 0. 35) = zero. 08 * (0. 65) = 0. 052 Response: 5. 2% 9-4 Expense of Preferred Share with Flottion Costs Burnwood Tech programs to issue some $60 par desired stock with a 6% gross. A similar share is providing on the market for $70. Burnwood must spend flotation costs of five per cent of the concern price. Precisely what is the cost of the preferred stock? E= Dividend/ (Market price-Flotation Costs)=(60/6)/(70-(70X0. 05)=0. 0541=5. 41 Answer: 5. 41% 9-5 Cost of Equity , DCF Summerdahl Resorts’ common stock happens to be trading for $36 a share. The stock is definitely expected to spend a gross of $3. 0 a share at the end of the yr (D1 _ $3. 00), and the gross is anticipated to grow by a constant level of five per cent a year. Precisely what is theexpense of common value? P0 = $36, D1 = $3. 00, g = 5%, rs =? rs = D1/P0+g=(3/36)+0. 05=0. 01333 Response: 13. 33% 9-6 Cost of Equity , CAPM Booher Book Retailers has a beta of 0. 8. The yield on the 3-month T-bill is 4% and the yield on a 10-year T-bond can be 6%. The market risk superior is your five. 5%, plus the return by using an average inventory in the market this past year was 15%. What is the estimated expense of common collateral using the CAPM? rs = rRF & bi(RPM) = 0. summer + 0. 8(0. 55) = 0. 14 Answer: 10. 4% 9-7 WACC Shi Importers’ balance sheet shows $300 mil in debt, $50 million in preferred stock, and $250 million altogether common value. Shi confronts a 40% tax rate and the next data: rd _ 6%, rps _ 5. 8%, and rs _ 12%. If Shi has a target capital composition of 30% debt, 5% preferred inventory, and 65% common inventory, what is Shi’s WACC? thirty percent Debt, five per cent Preferred Stock, 65% Value, rd = 6%, Big t = 40%, rps = 5. 8%, rs sama dengan 12%. WACC = (wd)(rd)(1 , T) + (wps)(rps) + (wce)(rs) WACC sama dengan 0. 30(0. 06)(1-0. 40) + zero. 05(0. 058) + zero. 65(0. 12) = 0. 0917 Response: 9. 17%
