1) For the following company, what is the correct weight of the company's common stock? Preferred stock $350 million, Bonds $400 million, Common $685 million.
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2) What is the cost of the following preferred stock? Price $32.55 per share. Dividend $4.11 per share.
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3) What is the cost of the following common stock? Price $44.82 per share. Dividend $1.56 per share. Expected growth rate 6% per year.
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4) What is the cost of the following bond? Maturity 20 years, Face value $1,000, coupon 8%, Yield 9%, tax rate 22%
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5) Calculate the WACC for the following: Bonds $100 million (with a cost of 8%), common $200 million (with a cost of 6%), Preferred $50 million (with a cost of 9%).
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1)
Correct option is > D) 48%
Weight of common stock = Common stock / (Common stock + Preferred stock + Debt)
= 685/(685+350+400)
= 48%
2)
Correct option is > A) 13%
Cost of preferred stock
= Dividend / Price
= 4.11/32.55
3)
Correct option is > C) 9%
Cost of common stock = (Dividend / Stock price) + Growth rate
Cost of common stock = (1.56/44.82) + 6%
Cost of common stock = 9%
4)
Correct option is > D) 7%
Cost of debt = Yield x (1-Tax)
= 9% x (1-22%)
= 7%
5)
Correct option is > = 6% x 57.14% + 9% x 14.29% + 8% x 28.57%
WACC = Cost of equity x Weight of equity + Cost of preferred x Weight of preferred + Cost of debt x Weight of debt
Particular |
Amt |
Weight |
Debt |
100 |
28.57% |
Equity |
200 |
57.14% |
Preferred |
50 |
14.29% |
Total |
350 |
WACC = 6% x 57.14% + 9% x 14.29% + 8% x 28.57%
WACC = 7%
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