Question

Droz's Hiking Gear, Inc. has found that its common equity capital shares have a beta equal to 1.5 while the risk-free return is 8 percent and the expected return on the market is 14 percent. It has 7-year semiannual maturity bonds outstanding with a price of $767.03 that have a coupon rate of 7 percent. The firm is financed with $120,000,000 of common shares (market value) and $80,000,000 of debt. What is the after-tax weighted average cost of capital for Droz's, if it is subject to a 35 percent marginal tax rate? Round your final percentage answer to two decimal places.

Group of answer choices

10.20%

11.76%

13.32%

11.88%

Answer #1

Marley's Plumbing Shops has found that its common equity capital
shares have a beta equal to 1.5 while the risk-free return is 8
percent and the expected return on the market is 14 percent. Its
cost of debt financing is 12 percent. The firm is financed with
$120,000,000 of common shares (market value) and $80,000,000 of
debt.
What is the proportion of debt and equity?
What is the CAPM?
What is the after-tax weighted average cost of capital for
Marley's,...

Question 18
Question
Droz's Hiking Gear, Inc. has found that its common
equity capital shares have a beta equal to 1.5 while the risk-free
return is 8 percent and the expected return on the market is 14
percent. It has 7-year semiannual maturity bonds outstanding with a
price of $767.03 that have a coupon rate of 7 percent. The firm is
financed with $140,000,000 of common shares (market value) and
$60,000,000 of debt. Droz's, is subject to a 35 percent...

A company has a cost of common equity capital of 17 % and its
cost of debt capital is 6 %. The firm is financed with $3,000,000
of common shares (market value) and $2,000,000 of debt. What is its
after-tax weighted average cost of capital if it is subject to a 25
% tax rate?

Testing Company, Inc. has the following combination of Debt and
Equity:
Common Stock:
15.5 million shares outstanding
Par value of $5/share
Book value of $20/share
Current price on the market of $65.25
Current Beta per a reliable source 1.13
Debt:
Maturity value of $500,000,000
Current price on the market of 97.3
Coupon rate if 4%
Semiannual payments
10 years until maturity
Other information:
Treasury bill rates — 2.45%
Market premium on this type of stock — 7.1%
Tax rate —...

A firm has a cost of equity of 13 percent, a cost of
preferred of 5 percent, an after-tax cost of debt of 3.4 percent
and a tax rate of 21%. Given this, which of the following will
increase the firm’s weighted average cost of capital?
Increase the firm’s tax rate
Issuing new bonds at par
Increasing the firm’s beta
Increasing the debt/equity ratio
Which of the following will decrease the after-tax cost
of debt for a firm?
Decrease in...

A firm has 14 million shares of common stock outstanding with a
beta of 1.15 and a market price of $42 a share. The 10 percent
semiannual bonds are selling at 91 percent of par/face value. There
are 220,000 bonds outstanding that mature in 17 years. The market
risk premium is 6.75 percent, T-bills are yielding 3.5 percent, and
the firm's tax rate is 32 percent.
1. What is the firms cost of Equity? by using CAPM
2. What is...

Hankins Corporation has 8.4 million shares of common stock
outstanding, 590,000 shares of 7.4 percent preferred stock
outstanding, and 184,000 of 8.6 percent semiannual bonds
outstanding, par value $1,000 each. The common stock currently
sells for $64.90 per share and has a beta of 1.29, the preferred
stock currently sells for $107.10 per share, and the bonds have 13
years to maturity and sell for 91.5 percent of par. The market risk
premium is 7 percent, T-bills are yielding 5.7...

8. Roll Tide, Inc. has 10,000 shares of common stock outstanding
at a price of $18 a share. The firm’s beta is 1.3 and the market
risk premium is 6.5%. The Treasury bill rate is 3.5%. There are
9,000 shares of preferred stock outstanding at a price of $22 a
share; each quarterly dividend payment on preferred stock is $0.45.
Roll Tide’s has 400 bonds 15 year bonds which have 6 years left to
maturity. They pay a coupon rate...

Nike has 9 million shares of common stock outstanding and 12,000
8.5% semiannual bonds outstanding, par value of $10,000 each.
Common stock currently sells for $34 per share and has a beta of
1.20. The bonds have 15 years to maturity and sell for 93% of par.
The market risk premium is 10%, Tbills are yielding 5% and the
firm’s tax rate is 35%. Find Nike’s weighted average cost of
capital (WACC).

) Hankins Corporation has 8 million shares of common stock
outstanding, 920,000 shares of preferred stock outstanding, and
180,000 of 5.5 percent semiannual bonds outstanding, par value
$1,000 each. The annual dividend for the preferred stocks is $4.8
per share. The common stock currently sells for $39 per share and
has a beta of 1.26, the preferred stock currently sells for $80 per
share, and the bonds have 25 years to maturity and sell for 98
percent of par. The...

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