Chapter 10 The Cost of Capital Learning Objectives After reading this chapter‚ students should be able to: Explain what is meant by a firm’s weighted average cost of capital. Define and calculate the component costs of debt and preferred stock. Explain why the cost of debt is tax adjusted and the cost of preferred is not. Explain why retained earnings are not free and use three approaches to estimate the component cost of retained earnings. Briefly explain the two alternative approaches
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Chapter 11 Mini Case‚ Q1-4 ONLY‚ pgs. 353-354 1. Compute the yield to maturity and the after-tax cost of debt for the two bond issues. Bond 1 | | Maturity | 12 | Coupone | 3‚5% | Par | 1000 | Flotation | 0 | PV | 1031 | Before tax | 3‚19% | After tax cost of Bond | 2‚10% | Bond 2 | | Maturity | 32 | Coupone | 4‚0% | Par | 1000 | Flotation | 0 | PV | 1035 | Before tax | 3‚8% | After tax cost of Bond | 2‚5% | 2. Compute BioCom’s cost of preferred stock
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2) Projected net income available to common stockholders for next year is $10 million‚ and the dividend payout ratio is 40%. Preferred stock consists of $10 million face value of 10% preferred. Depreciation for next year is expected to be$1 million. 3) The firm is a constant growth company with a current dividend of $2‚ a current market price of $20‚ and an annual growth rate of 5%. 4) The yield to investors is 12% on all new preferred stock. Floatation costs are 20% on all new common stock and
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wo of the largest and most profitable corporations in the United States are the Atlanta‚ Georgia based Coca-Cola Company and the New York based Pepsi Cola Company. While both are called "colas" they both attempt to address the same target tastes but from different approaches. Coke was the first on market with what is still a "secret" formula and Pepsi followed with a similar (not exact) taste. Since taste is very much a factor of your personal likes‚ either or neither may appeal to you or seem sweeter
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names Amex Secured Pay. • Almost 24% of the total dollar value of transaction in USA is credited to Amex cards. • Top 20 most admired brands of the world. • Most innovative company with the largest travel network that helps customers and businesses yield the max. • Amex deals with the niche clientele in the Indian consumer market with cards attracting annual pay. • India is increasing at a rapid rate‚ adding more than 20 million cards in the last financial year. • Highest number of card has been issued
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How will Gainesboro’s various providers of capital‚ such as its stockholders and creditors‚ react to a declaration of no dividend? What about the announcement of a 20% or 40% payout? How would they react to a residual payout policy? Mainly divided by two categories: income seeking investor or capital gains investor 1) Institutional growth oriented: capital gains investor These types of investors are interested in companies which have a high growth potential. They want the company to keep profits
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$150 million. 2.49. a. Stem and leaf diagram here. b. 12 Frequency 10 8 6 4 2 0 0.0-0.9 1.0-1.9 2.0-2.9 3.0-3.9 4.0-4.9 5.0-5.9 6.0-6.9 7.0-7.9 8.0-8.9 9.0-9.9 Dividend Yields c. The distribution is skewed to the right. d. Dividend yield ranges from 0% to over 9%. The most frequent range is 3.0% to 3.9%. Average dividend yields looks to be between 3% and 4%. Over 50% of the companies (16) pay from 2.0 % to 3.9%. Five companies (AT&T‚ DuPont‚ General Electric‚ Merck‚ and Verizon) pay 5.0% or
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0000 0.0000 0.0000 0.0000 0.6500 0.1336 0.0000 0.1258 0.0000 0.0000 0.0000 2. BP PLC (NYSE: BP) has a current stock price of $37 and current dividend of $1.32. The dividend is expected to grow at 5% annually. BP’s beta is 0.87. The risk-free rate is 1.5%‚ and the market risk premium is 5.0%. (a) What is next year’s projected dividend? The projected dividend D1 is D1 = D0 (1 + g) = $1.32 × 1.05 = $1.386 or $1.39 . 1 (1) (b) What is BP’s cost of equity capital based on the CAPM? The cost of equity
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National Foods Financial and Operating Highlights: | Unit | 2012 | 2011 | 2010 | 2009 | 2008 | Profitability Ratios | | | | | | | Gross Profit Ratio | % | 32.52 | 28.51 | 29.55 | 29.97 | 32.20 | Operating Profit to Sales | % | 12.66 | 8.83 | 5.76 | 8.18 | 9.48 | Net Profit to Sales | % | 8.14 | 4.18 | 1.93 | 3.71 | 5.11 | EBITDA Margin to Sales | % | 14.02 | 10.62 | 7.85 | 10.40 | 11.33 | Operating Leverage Ratio | % | 288.57 | 385.63 | (81.89) | 26.28 | 159.98 | Return on
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10/13/2013 Time Spent: 2 h ‚ 49 min ‚ 52 secs Points Received: 52 / 100 (52%) Question Type: # Of Questions: # Correct: Multiple Choice 9 5 Essay 1 N/A Grade Details - All Questions 1. Question : (TCO D) A stock just paid a dividend of D0 = $1.50. The required rate of return is rs = 10.1%‚ and the constant growth rate is g = 4.0%. What is the current stock price? Student Answer: $23.11 $23.70 $24.31 $24.93 $25.57 Instructor Explanation:
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