question archive 1) A firm is paying an annual dividend of $6
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1) A firm is paying an annual dividend of $6.00 for its preferred stock which is selling for $69.00. There is a selling cost of $3.00. What is the after-tax cost of preferred stock if the firm's tax rate is 35%? (Round your answer to 2 decimal places.) |
10.54%
9.09%
11.24%
7.74%
2) A firm's stock is selling for $77. The next annual dividend is expected to be $3.00. The growth rate is 9%. The flotation cost is $8. What is the cost of retained earnings? (Round your answer to 2 decimal places.) |
10.75%
11.55%
12.90%
14.35%
3) The coupon rate on an issue of debt is 9%. The yield to maturity on this issue is 10%. The corporate tax rate is 32%. What would be the approximate after-tax cost of debt for a new issue of bonds? (Round your answer to 2 decimal places.) |
6.80%
8.95%
5.45%
8.25%
4) Firm X has a tax rate of 25%. The price of its new preferred stock is $68 and its flotation cost is $2.00. The cost of new preferred stock is 11%. What is the firm's dividend? (Round your answer to 2 decimal places.) |
$9.41
$7.26
$5.91
$8.71
5) Expected cash dividends are $4.00, the dividend yield is 8%, flotation costs are 6% of price, and the growth rate is 3%. Compute cost of new common stock. (Do not round intermediate calculations. Round your answer to 2 decimal places.) |
12.51%
11.51%
13.61%
11.26%
6) The coupon rate on a debt issue is 5%. 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 33%? (Round your answer to 2 decimal places.) |
7.38%
8.18%
4.68%
6.03%
Answers:
Ans. 1 | Option 2nd 9.09% | ||||||||||
Cost of preferred stock (after tax) = (Dividend / NP)* 100 | |||||||||||
( 6 / 66) * 100 | |||||||||||
9.09% | |||||||||||
*Net proceed (NP) = Price - flotation cost | |||||||||||
69 - 3 | |||||||||||
66 | |||||||||||
Ans. 2 | Option 3rd 12.90% | ||||||||||
Cost of retained earnings = ( DPS / Selling price * 100) + Growth rate | |||||||||||
(3 / 77 * 100) + 9% | |||||||||||
3.90% + 9% | |||||||||||
12.90% | |||||||||||
Ans. 3 | Option 1st 6.80% | ||||||||||
Cost of debt (after tax) = Yield to maturity * ( 1 - tax rate) | |||||||||||
10 %* ( 1 - 0.32) | |||||||||||
6.80% | |||||||||||
Ans. 4 | Option 2nd $7.26 | ||||||||||
Dividend per share = Net Proceed * cost of preferred stock | |||||||||||
66 * 11% | |||||||||||
7.26 per share | |||||||||||
*Net proceed (NP) = Price - flotation cost | |||||||||||
68 - 2 | |||||||||||
66 | |||||||||||
Ans. 5 | Option 2nd 11.51% | ||||||||||
Cost of new common stock = (DPS /NP)*100 + Growth rate | |||||||||||
(4 / 47) * 100 + 3% | |||||||||||
8.51% + 3% | |||||||||||
11.51% | |||||||||||
*Price = Dividend / Dividend yield | |||||||||||
4 / 8% | |||||||||||
50 | |||||||||||
*Net proceed (NP) = Price - flotation cost | |||||||||||
50 - 6% | |||||||||||
47 | |||||||||||
Ans. 6 | Option 4th = 6.03% | ||||||||||
Cost of debt in WACC (after tax) = Yield to maturity * ( 1 - tax rate) | |||||||||||
9% * (1 - 0.33) | |||||||||||
6.03% | |||||||||||