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ADM 2350 Lecture Notes - Lecture 9: Voting Interest, Dividend Yield, V Engine

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School
University of Ottawa
Department
Administration
Course
ADM 2350
Professor
Anna Dodonova

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Document Summary

> not all common shares are created equally, most rms have only one type of common stock. > some shares may have more then normal voting rights (multiple or super-voting shares), Some shares may have voting restrictions (or even no voting rights) > most stocks" expected total return = dividend yield + capital gains yield. > the intrinsic value of a stock is the present value of its expected future cash ow stream. Xyz"s tax rate is 40% and its equity beta = 1. 3. Assume we have the following information about the rm xyz: find the value of equity and value of debt and find wacc. Answ: e = 400,000 * 20 = m. V = 8 mil + 9. 6 mil = . 6m. Re = 0. 06 + 1. 3(0. 16 - 0. 06) = 19% Rd: fv=1000; pv=-1,200; pmt = 80; n=20, find i/y.

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Related Questions

  1. You have the following data available for ABC textile; Yield to maturity (YTM) of company's bonds is 7.75%, tax rate of 40% the upcoming dividend of $0.65 per share, the expected growth rate of dividends is 6.00% per year and it is expected to remain constant, while company's stocks are being traded at $15 per share. The floation cost is 10% if the company decides to issue new shares and company's target capital structure is 45% debt and 55% common stocks. Calculate the company's WACC assuming that it must issue new equity to finance its capital budgeting projects while maintaining its target capital structure.

    1.  0.0726

    2.  0.0764

    3.  0.0689

    4.  0.0804

    5.  0.0844

Your company has 14 million shares of common stock outstanding. The common stock currently sells for $34 per share and has a beta of 1.2. The market risk premium is 10.5 percent and T-bills are yielding 2.0 percent. Use the T-bill yield for the risk-free rate.

The company has 900,000 shares of preferred stock outstanding. The preferred stock currently sells for $60 per share and pays 6 percent dividend for each $100 face value.

The company also has 210,000 (semi-annual) bonds outstanding with a 10% percent coupon interest rate and par value $1,000 each. The bonds have 15 years to maturity and sell for 91 percent of the par. The companys average tax rate is 34 percent.

Answer the following questions: PLEASE SHOW ALL WORK THANKS!!!!!!

1. What is the cost of common equity (Re) based on the CAPM?

2. What is the cost of preferred stock?

3. What is the pre-tax cost of bond?

4. What is market value of common stocks?

5. What is market value of preferred stocks?

6. What is market value of bonds?

7. What is total market value of the firm?

8. What are capital structure weights (We, Wp, and Wd)?

9. What is the weighted average-cost of capital (WACC) of the company?

Your company has 14 million shares of common stock outstanding. The common stock currently sells for $34 per share and has a beta of 1.2. The market risk premium is 10.5 percent and T-bills are yielding 2.0 percent. Use the T-bill yield for the risk-free rate.

The company has 900,000 shares of preferred stock outstanding. The preferred stock currently sells for $60 per share and pays 6 percent dividend for each $100 face value.

The company also has 210,000 semiannual bonds outstanding with a 10% coupon interest rate and par value $1,000 each. The bonds have 15 years to maturity and sell for 91 percent of the par. The company's average tax rate is 34 percent. Answer the following questions.

(1) What is the cost of common equity (RE) based on the CAPM?

(2) What is the cost of preferred stock (RP)?

(3) What is the pre-tax cost of bond (RD)?

(4)What is market value of common stocks (E)?

(4)What is market value of common stocks (E)?

(5)What is market value of preferred stocks (P)?

(6)What is market value of bonds (D)?

(7) What is total market value of the firm (V)?

(8) What are capital structure weights (WE, WP, and WD)?

(9) What is the weighted average cost of capital (WACC) of the company?