19. Which of the following best defines the term “dividend record date”? A. The
ID: 2765296 • Letter: 1
Question
19. Which of the following best defines the term “dividend record date”?
A. The date that the dividend is paid to the shareholders.
B. The date that shareholders listed on the corporate books will receive the dividend.
C. The date that the stock trades without the dividend.
D. The date that the highest dividend in the company history has been announced.
20. Which of the following best describes the risk measure known as beta?
A measure of efficient frontier.
A measure of state dependent returns.
A measure of risk that cannot be diversified away by conforming portfolios.
A measure of the expected return of the market.
21. Western Electric has 23,000 shares of common stock outstanding at a price per share of $57 and a rate of return of 14.2 percent. The firm has 6,000 shares of 7 percent preferred stock outstanding at a price of $48 a share. The preferred stock has a par value of $100. The company also has 350 corporate bonds, each with $1000 par value, and the bond currently sells for 102 percent of face. The yield-to-maturity on the debt is 8.49 percent.
What is the firm's weighted average cost of capital if the tax rate is 34 percent?
14.19%
13.44%
12.69%
14.47%
PLEASE ANSWER ALL QUESTIONS
A.A measure of efficient frontier.
B.A measure of state dependent returns.
C.A measure of risk that cannot be diversified away by conforming portfolios.
D.A measure of the expected return of the market.
Explanation / Answer
19) B. The date that shareholders listed on the corporate books will receive the dividend.
20) C. A measure of risk that cannot be diversified away by conforming portfolios.
21) None of the options are correct, if cost of debt is taken as 8.49*(1-.0.34).
The WACC will be 13.01% as shown below:
If cost of debt is taken as 8.49 (YTM without adjusting for tax shield) the WACC will be 13.43 as calculated below:
This is closest to option B - 13.44%
Workings: Specific cost of capital:
Cost of equity - Ke = 14.2% (given)
Cost of preference shares - Kp= 7/48 = 14.58%
Cost of debt = 8.49*(1-0.34) - Kd = 8.49*0.66 = 5.60%
# of shares unit total specific or bonds price mkt value wt cost wacc Equity 23000 57 1311000 0.67 14.2 9.52 Debt 6000 48 288000 0.15 5.60 0.82 Pref 350 1020 357000 0.18 14.58 2.66 1956000 13.01Related Questions
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