1.) Phillips Equipment has 80,000 bonds outstanding that are selling at par. Bon
ID: 2740403 • Letter: 1
Question
1.)Phillips Equipment has 80,000 bonds outstanding that are selling at par. Bonds with similar characteristics are yielding 7.5 percent. The company also has 750,000 shares of 7 percent preferred stock and 2.5 million shares of common stock outstanding. The preferred stock sells for $65 a share. The common stock has a beta of 1.34 and sells for $42 a share. The cost of equity is 14.06 percent. The corporate tax rate is 38 percent. What is the firm's weighted average cost of capital?
10.15 percent
10.64 percent
11.18 percent
d. 1.30 percent
2.)A stock had returns of 11 percent, 18 percent, -21 percent, 5 percent, and 34 percent over the past five years. What is the standard deviation of these returns?
3.)R.S. Green has 250,000 shares of common stock outstanding at a market price of $25 a share. Next year'sannual dividend is expected to be $1.55 a share. The dividend growth rate is 2 percent. The firm also has 7,500 bonds outstanding with a face value of $1,000 per bond. The bonds carry a 7 percent coupon, pay interest semiannually, and mature in 7.5 years. The bonds are selling at 98 percent of face value. The company's tax rate is 34 percent. What is the firm's weighted average cost of capital?
Question 6 options:
6.39 percent
6.88 percent
7.51 percent
8.52 percent
4.)Wind Power Systems has 20-year, semi-annual bonds outstanding with a 3 percent coupon. The face amount of each bond is $1,000. These bonds are currently selling for 110 percent of face value. What is the company's pre-tax cost of debt?
5.)Southern Home Cookin' just paid its annual dividend of $0.65 a share. Dividends are expected to grow at 6% forever. The stock has a market price of $13 and a beta of 1.12. The return on the U.S. Treasury bill is 2.5 percent and the market risk premium is 6.8 percent. What is the cost of equity?
6.)
Which one of the following is the pre-tax cost of debt?
Question 9 options:
Weighted average yield-to-maturity on the firm's outstanding debt
Average coupon rate on the firm's outstanding bonds.
Coupon rate on the firm's latest bond issue
Annual interest divided by the market price per bond for the latest bond issue
7.)
a.10.15 percent
b.10.64 percent
c.11.18 percent
d. 1.30 percent
2.)A stock had returns of 11 percent, 18 percent, -21 percent, 5 percent, and 34 percent over the past five years. What is the standard deviation of these returns?
3.)R.S. Green has 250,000 shares of common stock outstanding at a market price of $25 a share. Next year'sannual dividend is expected to be $1.55 a share. The dividend growth rate is 2 percent. The firm also has 7,500 bonds outstanding with a face value of $1,000 per bond. The bonds carry a 7 percent coupon, pay interest semiannually, and mature in 7.5 years. The bonds are selling at 98 percent of face value. The company's tax rate is 34 percent. What is the firm's weighted average cost of capital?
Question 6 options:
6.39 percent
6.88 percent
7.51 percent
8.52 percent
4.)Wind Power Systems has 20-year, semi-annual bonds outstanding with a 3 percent coupon. The face amount of each bond is $1,000. These bonds are currently selling for 110 percent of face value. What is the company's pre-tax cost of debt?
5.)Southern Home Cookin' just paid its annual dividend of $0.65 a share. Dividends are expected to grow at 6% forever. The stock has a market price of $13 and a beta of 1.12. The return on the U.S. Treasury bill is 2.5 percent and the market risk premium is 6.8 percent. What is the cost of equity?
6.)
Which one of the following is the pre-tax cost of debt?
Question 9 options:
Weighted average yield-to-maturity on the firm's outstanding debt
Average coupon rate on the firm's outstanding bonds.
Coupon rate on the firm's latest bond issue
Annual interest divided by the market price per bond for the latest bond issue
7.)
Explanation / Answer
1. Cost of equity = 14.06%
Total Invested Capital = [80000 bonds x $100] + [750000 preference shares x $65] + [2500000 common stock x $42]
= $161750000
Weight of equity = [2500000x42] / 161750000 = 0.65
Weight of debt = 8000000 / 161750000 = 0.05
Weight of preference shares = [750000x65] / 161750000 = 0.30
Weighted cost of equity = 14.06 x 0.65 = 9.139%
After tax cost of debt = 7.5%(1-0.38) = 4.65%
Weighted cost of debt = 4.65 x 0.05 = 0.2325%
Cost of preference shares = 7%
Weighted cost of preference shares = 7 x 0.30 = 2.1%
WACC = Weighted cost of equity + Weighted cost of debt + Weighted cost of preference shares
= 9.139 + 0.2325 + 2.1 = 11.18%
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