FIN 401 Study Guide - Midterm Guide: Liquidating Distribution, Dividend Policy, Tax Shield

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ochreguinea-pig475

20 Mar 2017

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I= total capital investment d=cca tax rate tc = corporate tax rate r=after tax cost of debt. Sn=salvage value in year n n=number of periods in this project note: second half of formula=salvage. Risk-free rate= rf market risk premium (mrp) = e(rm) rf systematic risk of asset = e. Re = d1/p0 +g dividend growth model (cost of equity) example: dividend payout of next year, expected growth in dividends of. 23. 95% if d1 isn"t given, calculate it manually d1 = d0*(1+g) Example: your company has preferred stock that has an annual dividend of . Rd is cost of debt(can use calculator, find i%) Wacc can be=required return on assets weight of cost of equity * cost of equity + weight of debt * after-tax cost of debt. Weighted average flotation cost: fc = wd*fd +we*fe example: d/e of 0. 75. Fund to raise including floating cost = i0 / (1-fc)

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Really need help !!!!

2. You are given the following information concerning Around Town Tours:

Â· Debt: 8,500 shares, 7.1 percent coupon bonds outstanding, with 14 years to maturity and a price of $1,026. Bonds pay interest semiannually.

Â· Common stock: 265,000 shares selling for $76 per share; stock beta is 0.92 and will pay dividend of $2.48 next year. The dividend is expected to grow by 4 percent per year indefinitely

Â· Preferred stock: 7,500 shares, 6 percent dividend, selling at $88 per share.

You also know the return on market portfolio is 13.2%; risk-free rate is 4.5%; and firm tax rate is 34%.

a. What is the cost of equity using CAPM? What is cost of equity using dividend growth model? What is your estimate of the cost of equity, based on the above results?

b. What is before tax cost of debt? What is after-tax cost of debt?

c. What is cost of preferred stock?

d. What are the firmâs capital structure weights of equity, debt, and preferred stock?

e. Calculate the WACC for this firm.

crimsonfrog156

Most of this question was answered the tax rate was missing. The tax rate is now included. 22.38%Thank you

Need

WACC calculations in Excel with (a) Cost of Equity calculated in both Dividend Growth Model and CAPM (aka SML), (b) Cost of Debt calculated from Bond Table weighted average,WACC calculation including weighted average Bond Table for Debt Calculations, Equity from both Dividend Growth Model and CAPM Model, and Preferred Stock (if any).

BONDS FOR ____Mattel -r_________________
	A	B	C	D	E	F
			(A * B) / 100			(D * E)/100
SYMBOL	AMOUNT OUTSTANDING	LAST TRADE PRICE	MARKET VALUE	% of TOTAL	YTM	WEIGHTED YTM
Mattel 2.35%	500,000,000	100.7	503,500,000	0.229	1.99	0.456%
Mattel 2.35%	350,000,000	97.8	342,300,000	0.156	2.89	0.451%
Mattel 5.45%	300,000,000	102.9	308,700,000	0.141	5.24	0.737%
Mattel 4.35%	250,000,000	106.2	265,500,000	0.121	2.48	0.300%
Mattel 6.2%	250,000,000	111.1	277,750,000	0.127	5.36	0.678%
Mattel 1.7%	250,000,000	99.0	247,500,000	0.113	2.83	0.319%
			-	0.000		0.000%
			-	0.000		0.000%
			-	0.000		0.000%
Mattel 3.15%	250,000,000	99.9	249,750,000	0.114	3.18	0.362%
TOTAL			2,195,000,000	1.000		3.303%
				po	25.01
				D	2,195,000,000
				RD	3.30%
				shares outstanding	342,510,000
				beta	0.74
				g	10.56%
				10 year bond yield rf	2.21
				rm	12.44%
				d1	.38*4 =	1.52

				Re	Rf+Beta(Rm-Rf)

				tax rate	22.38%

aquamarinealligator757

Cost of Common Equity with and without Flotation

The Evanec Company's next expected dividend, D₁, is $3.95; its growth rate is 5%; and its common stock now sells for $34. New stock (external equity) can be sold to net $28.90 per share.

What is Evanec's cost of retained earnings, r_s? Round your answer to two decimal places. Do not round your intermediate calculations.
r_s = ___________ %

What is Evanec's percentage flotation cost, F? Round your answer to two decimal places.
F = _______%

What is Evanec's cost of new common stock, r_e? Round your answer to two decimal places. Do not round your intermediate calculations.
r_e = _____________ %

Palencia Paints Corporation has a target capital structure of 45% debt and 55% common equity, with no preferred stock. Its before-tax cost of debt is 10% and its marginal tax rate is 40%. The current stock price is P₀ = $26.50. The last dividend was D₀ = $2.00, and it is expected to grow at a 5% constant rate. What is its cost of common equity and its WACC? Round your answers to two decimal places. Do not round your intermediate calculations.

r_s = _________%

WACC = ______________ %

amaranthcoyote892

FIN 401 Study Guide - Midterm Guide: Liquidating Distribution, Dividend Policy, Tax Shield

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