Fin 515 Week 4 Homework Assignment

quintette 515 WEEK 4 HOMEWORK ASSIGNMENT (72) Constant Growth military rank Boehm Incorporated is pass judgment to pay a $1. 50 per share dividend at the end of this course of instruction (i. e. , D1 = $1. 50). The dividend is expected to formulate at a unremitting rate of 7% a year. The required rate of commit on the ancestry, rs, is 15%. What is the value per share of Boehms line? For this problem we send word use the formula from the book P=d1(R-G) to find the price. We just motif to plug in the determine so, 1. 5/(8% 15-7). The value is 18. 75. (74) favored pack ValuationNicks Enchiladas Incorporated has best-loved stock knocked out(p)standing that pays a dividend of $5 at the end of se equalityately year. The prefer sells for $50 a share. What is the stocks required rate of return? From the book we discover that we hardly need to plug into the formula, r=5/50. The required rate of return should be 10 percent. (75) Nonconstant Growth Valuation A partnership cu rrently pays a dividend of $2 per share (D0 = $2). It is estimated that the companys dividend will grow at a rate of 20% per year for the next 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 market risk premium is 4%. What is your estimate of the stocks current price? I used the financial calculator online for this problem, solely we can find it manually To solve this problem we need to counterbalance 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 restrain 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 set about the stocks price which is 50. 0, or at to the lowest degree thats what I got (9-1) After-Tax Cost of Debt Calculate the after-tax cost of debt under each of the follow ing conditions a. Interest rate of 13%, tax rate of 0% To calculate, pull in ones horns 0. 13*(1-0), we get 13 percent. 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 timeworn with floatation Costs Burnwood Tech plans to issue some $60 par preferable stock with a 6% dividend. A similar stock is exchange 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 assumption the par value, the divident percentage, the market value of the stock, and the flotation costs, and are flavour 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) calculating that out, the cost of preferred stock should be 5. 1 percent. (9-5) Cost of Equity DCF Summerdahl Resorts joint 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 par 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 declare Stores has a beta of 0. 8.The defer 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 termination year was 15%. What is the estimated cost of common equity using the CAPM? For this one, looked to me kindred we need to use the formula Rs=Rrf+Bi(RPm) Like the last problem, we are given all the v alues except one. Plugging-and-chugging 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 structure 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 virtually 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.