13(1) The Dybvig Corporation’s common stock has a beta of 1.3. If the risk-free
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Question
13(1) The Dybvig Corporation’s common stock has a beta of 1.3. If the risk-free rate is 5.3 percent and the expected return on the market is 11 percent, what is Dybvig’s cost of equity capital? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Cost of equity capital %
13(2)
Advance, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 20 years to maturity that is quoted at 108 percent of face value. The issue makes semiannual payments and has a coupon rate of 10 percent annually.
What is Advance's pretax cost of debt? (Do not round intermediate calculations and round your answer to 2 decimal places. (e.g., 32.16))
If the tax rate is 35 percent, what is the aftertax cost of debt? (Do not round intermediate calculations and round your answer to 2 decimal places. (e.g., 32.16))
13(3)
Shanken Corp. issued a 30-year, 6 percent semiannual bond 4 years ago. The bond currently sells for 95 percent of its face value. The company's tax rate is 35 percent.
What is the pretax cost of debt? (Do not round intermediate calculation and round your answer to 2 decimal places. (e.g., 32.16))
What is the aftertax cost of debt? (Do not round intermediate calculations and round your answer to 2 decimal places. (e.g., 32.16))
Which is more relevant, the pretax or the aftertax cost of debt?
13(4)
13(5)
Miller Manufacturing has a target debt–equity ratio of 0.35. Its cost of equity is 14 percent, and its cost of debt is 5 percent. If the tax rate is 38 percent, what is Miller’s WACC? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
13(6)
Filer Manufacturing has 4 million shares of common stock outstanding. The current share price is $83, and the book value per share is $8. Filer Manufacturing also has two bond issues outstanding. The first bond issue has a face value $90 million, has a coupon of 6 percent, and sells for 98 percent of par. The second issue has a face value of $60 million, has a coupon of 7 percent, and sells for 106 percent of par. The first issue matures in 21 years, the second in 3 years.
What are Filer's capital structure weights on a book value basis? (Do not round intermediate calculations and round your final answers to 4 decimal places. (e.g., 32.1616))
What are Filer's capital structure weights on a market value basis? (Do not round intermediate calculations and round your final answers to 4 decimal places. (e.g., 32.1616))
Which are more relevant?
13(7)
Corporation Growth has $82,000 in taxable income, and Corporation Income has $8,200,000 in taxable income. Use the tax rates from Table 2.3. (Do not round intermediate calculations.)
Suppose both firms have identified a new project that will increase taxable income by $10,000. How much in additional taxes will each firm pay?
Advance, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 20 years to maturity that is quoted at 108 percent of face value. The issue makes semiannual payments and has a coupon rate of 10 percent annually.
Explanation / Answer
Answer:13(1) Calculation of the Dybvig’s cost of equity capital:
Ke=Rf+beta(Erm-Rf)
=5.3%+1.3(11%-5.3%)
=12.71%
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