Fin 515 Week 4 Homework Assignment

FIN 515 WEEK 4 HOMEWORK ASSIGNMENT (72) Constant Growth military rating Boehm Incorpo posed is expected to pay a $1. 50 per shargon dividend at the end of this category (i. e. , D1 = $1. 50). The dividend is expected to grow at a continual rate of 7% a year. The required rate of bring to on the stock, rs, is 15%. What is the value per share of Boehms stock? For this problem we bed use the radiation diagram from the book P=d1(R-G) to find the price. We just need to plug in the value so, 1. 5/(8% 15-7). The value is 18. 75. (74) Preferred fall ValuationNicks Enchiladas Incorporated has best-loved stock outstanding that pays a dividend of $5 at the end of each year. The prefer sells for $50 a share. What is the stocks required rate of return? From the book we discover that we simply need to plug into the formula, r=5/50. The required rate of return should be 10 percent. (75) Nonconstant Growth Valuation A company currently pays a dividend of $2 per share (D0 = $2). It is estimate d that the companys dividend will grow at a rate of 20% per year for the near 2 years, then at a constant rate of 7% thereafter. The companys stock has a beta of 1. , the risk-free rate is 7. 5%, and the food market risk premium is 4%. What is your estimate of the stocks current price? I used the financial calculator online for this problem, but we can find it manually To solve this problem we need to first calculate the required rate of return, which is Rs=Rf+B(Rrm-Rrf), so 7. 5+(11. 5-7. 5)*1. 2=12. 3 So, D0 would be 2, D1 would be 2. 4, D2 would be 2. 88, and D3 would be 3. 08. We then have to calculate the PV for the dividends, which is 4. 42. We have to calculate P2, which came out to 46. 10. After adding up the PV values we get the stocks price which is 50. 0, or at least thats what I got (9-1) After-Tax Cost of Debt Calculate the after-tax cost of debt under each of the following conditions a. Interest rate of 13%, tax rate of 0% To calculate, take 0. 13*(1-0), we get 13 pe rcent. b. Interest rate of 13%, tax rate of 20% To calculate, take 0. 13*(1-0. 20), we get 10. 4 percent. c. Interest rate of 13%, tax rate of 35% To calculate, take 0. 13*(1-0. 35), we get 8. 45 percent. (9-4) Cost of Preferred Stock with Flotation Costs Burnwood Tech plans to issue some $60 par preferred stock with a 6% dividend. A similar stock is sell on the market for $70.Burnwood must pay flotation costs of 5% of the issue price. What is the cost of the preferred stock? Were given the par value, the divident percentage, the market value of the stock, and the flotation costs, and are looking for the cost. The ADP of the preferred stock is 6 percent*60, which comes out to 3. 60. The cost of Preferred Stock can be calculated as (Preferred stock dividend/MP of Preferred Stock*(1-FC) We just need to plug in the numbers, so you get basically (60*. 06)/70*(1-0. 05) calculative that out, the cost of preferred stock should be 5. 1 percent. (9-5) Cost of Equity DCF Summerdahl Resorts common stock is currently trading at $36 a share. The stock is expected to pay a dividend of $3. 00 a share at the end of the year (D1 = $3. 00), and the dividend is expected to grow at a constant rate of 5% a year. What is its cost of common equity? For this problem, we are to use the equation r=(D1/P0)+g Since we are given the P0, D1, and G (36,3,0. 05) we are looking for r so, just plug-and-chug. Comes out to 13. 3 percent. (9-6) Cost of Equity CAPM Booher Book Stores has a beta of 0. 8.The give back on a 3-month T-bill is 4% and the yield on a 10-year T-bond is 6%. The market risk premium is 5. 5%, and the return on an average stock in the market last year was 15%. What is the estimated cost of common equity using the CAPM? For this one, looked to me like we need to use the formula Rs=Rrf+Bi(RPm) Like the last problem, we are given all the values except one. Plugging-and-chugging over again, I got 0. 06+0. 8*(0. 055), came out to 10. 4 percent. (9-7) WACC Shi Importers balance sheet shows $300 million in debt, $50 million in preferred stock, and $250 million in total common equity.Shis tax rate is 40%, rd = 6%, rps = 5. 8%, and rs = 12%. If Shi has a target capital expression of 30% debt, 5% preferred stock, and 65% common stock, what is its WACC? So, for this problem we need to find the WACC which can be found by the formula (Wd)*(Rd)*(1-T)+(Wps)*(Rps)+(Wce)(Rs) We are again given most of the values, so its plug-and-chug from here on, pretty much. Debt is 0. 30, PS is 0. 05, Equity is 0. 65, Rd is 0. 06, T is 0. 40, Rps is 0. 058, and Rs is 0. 12 So when plugged it looks like (0. 30*0. 06*(1-0. 40))+0. 05*0. 058+0. 65*0. 12, and that came out to 9. 17 percent.