Question

Q1

Expected cash dividends are $2.00, the dividend yield is 8%, flotation costs are 6% of price, and the growth rate is 2%. Compute the approximate cost of new common stock. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Q2

The coupon rate on a debt issue is 9%. If the yield to maturity on the debt is 9%, what is the after-tax cost of debt in the weighted average cost of capital if the firm's tax rate is 35%? (Round your answer to 2 decimal places.)

Q3

A firm's stock is selling for $85. The next annual dividend is expected to be $4.00. The growth rate is 7%. The flotation cost is $7. What is the cost of retained earnings? (Round your answer to 2 decimal places.)

Q4

A firm's preferred stock pays an annual dividend of $4, and the stock sells for $72. Flotation costs for new issuances of preferred stock are 7% of the stock value. What is the after-tax cost of preferred stock if the firm's tax rate is 39%? (Round your answer to 2 decimal places.)

Q5

A firm is paying an annual dividend of $5.00 for its preferred stock which is selling for $67.00. There is a selling cost of $3.00. What is the after-tax cost of preferred stock if the firm's tax rate is 39%? (Round your answer to 2 decimal places.)

Q6

Kuhns Corp. has 160,000 shares of preferred stock outstanding that is cumulative and 100,000 common stock outstanding. The preferred dividend is $5.90 per share and has not been paid for 3 years. If Kuhns earned $1.40 million this year, what could be the maximum payment to the preferred stockholders on a per share basis? (Round your answer to 2 decimal places.)

Q7

Tricki Corp stock sells for $90 rights-on, and the subscription price is $80. Ten rights are required to purchase one share. Tomorrow the stock of Tricki will go ex-rights. What is Tricki's expected price when it begins trading ex-rights? (Round your answer to 2 decimal places.)

Q8

Six rights are necessary to purchase one share of Fogel stock at $48. A right sells for a $6. The ex-rights value of Fogel stock is_______.

Q9

Buggy Whip Manufacturing Company is issuing preferred stock yielding 10%. Selten Corporation is considering buying the stock. Assume that Buggy's tax rate is 0% due to continuing heavy tax losses, and Selten's tax rate is 30%. What is the after-tax preferred yield for Selten? Assume the tax rate on dividends is 15%. (Round your answer to 2 decimal places.)

Answer 1

1]

stock price = expected dividend / dividend yield = $2 / 8% = $25

net proceeds per share = stock price * (1 - flotation cost) = $25 * (1 - 6%) = $23.50

cost of new common stock = (expected dividend / net proceeds per share) + growth rate

cost of new common stock = ($2 / $23.50) + 2%

cost of new common stock = 10.51%

2]

after tax cost of debt = YTM * (1 - tax rate) = 9% * (1 - 35%) = 5.85%

3]

cost of RE = (next year dividend / stock price) + growth rate

cost of RE = ($4 / $85) + 7%

cost of RE = 11.71%