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Presentation/PPT
27/08/2022
7. Bouchard Company’s stock sells for $20 per share, its last dividend (D0) was $1.00, its growth rate is a constant 6 percent, and the company would incur a flotation cost of 20 percent if it sold new common stock. Retained earnings for the coming year are expected to be $1,000,000, and the common equity ratio is 60 percent. If Bouchard has a capital budget of $2,000,000, what component cost of common equity will be built into the WACC for the last dollar of capital the company raises? (Points : 1) 11.30%11.45%11.80%12.15%12.63%8. Diggin Tools just issued new preferred stock, which sold for $85 in the stock markets. Holders of the stock will receive an annual dividend equal to $9.35. The flotation costs associated with the new issue were 6 percent and Diggin’s marginal tax rate is 30 percent. What is Diggin’s cost of preferred stock, rps? (Points : 1) 11.0%7.7%8.2%11.7%10.3%9. Allison Engines Corporation has established a target capital structure of 40 percent debt and 60 percent common equity. The firm expects to earn $600 in after-tax income during the coming year, and it will retain 40 percent of those earnings. The current market price of the firm’s stock is P0 = $28; its last dividend was D0 = $2.20, and its expected dividend growth rate is 6 percent. Allison can issue new common stock at a 15 percent flotation cost. What will Allison’s marginal cost of equity capital (not the WACC) be if it must fund a capital budget requiring $600 in total new capital? (Points : 1) 15.8%13.9%7.9%14.3%9.7%10. SW Ink’s preferred stock, which pays a $5 dividend each year, currently sells for $62.50. The company’s marginal tax rate is 40 percent. What is the cost of preferred stock, rps, that should be included in the computation of the SW Ink’s weighted average cost of capital (WACC)? (Points : 1) 8.0%4.8%3.2%The dividend growth rate is needed to compute rps; so not enough information is given to answer this question.None of the above is correct.
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