Crypton electronics has a capital structure consisting of 42% Common stock and 58% debt. A debt issue of $1000 par value, 6.4% bonds that mature in 15 years and pay intrest will sell for $973. Common stock of the firm's currently selling for 30.32 per share and the firm expects to pay a $2.33 dividend next year. dividends have grown at a rate of 52% per year and are expected to continue to do so for forssable future. What is Crypton's cost of capital where the firms for rate is 30%

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Jamar FerryLv2

29 Sep 2019

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Heavy Duty Zippers Inc., a manufacturer of girdles and other fine intimate apparel products, wants to determine its WACC today 6/15/2009. The firm issued 5000 bonds that mature in 20 years with $1,000 face value. These bonds pay an 8% coupon rate semiannually and are currently selling for $908. The firm has 50K preferred shares of stock outstanding with a book value of $30, but currently selling for $40 per share. The last (paid yesterday) preferred and common dividend payments were $3 and $1.5 per share respectively. The firm's EPS five years ago was $4 and the firm expects to increase its next dividend payment by the implied 5-year EPS growth rate. Flotation costs on debt and preferred equity (D&P) are both 1%, but 5% of the selling price in the case of common stocks. The common stock is selling today for $35 and the firm's tax rate and payout ratio are 35% and 30%. The firm has 80K shares of common stock outstanding with the same book value as that of its preferred stock. a) Calculate the book value and market value weights for each source of capital. b) Calculate the component costs of capital (Including flotation costs) for common equity, preferred equity, and debt. c) Determine the weighted average costs of capital using both the market and the book value weights.

mauvekangaroo793

A Cost of Capital Problem

You collect the following information on the debt andequity components of Walkure Corporationâs capital structure. Thecorporation believes it has an optimal capital structure and willuse the current capital structure to calculate its cost ofcapital.

Capital Structure	Book	Market	Term to	Current	Par
Components	Value	Value	Maturity	Price	Value
	[In millions]	[In millions]	In Years
4.65% Senior Debentures	$ 31.45	$30.19	5	$960.00	$1,000
6.35% Senior Debentures	102.72	100.66	11	$980.00	$1,000
9.10% Subordinated Debentures	82.32	88.08	14	$1,070.00	$1,000
8.40% Preferred Stock	20.98	25.17	perpetual	$30.00	$25
Common Equity	190.00	259.19		$32.00	$1
Totals	$424.47	$503.29

The firm has a marginal income tax rate of 35% andflotation costs currently estimated at 2% on debt issues and 5% onequity issues. The company expects to pay a dividend of $0.40 pershare on its common next year and growth is expected to be 6.5%annually in the future.

Assuming no new common stock will be issued to thepublic -- i.e. all new common equity will be internally generated âcalculate effective costs and the weighted-average cost of capitalfor the firm based on the current capital structure, which isassumed to be optimal.

A. What is the Effective Costof the 8.40% Preferred Stock?

a. 8.40%

b. 7.37%

c. 6.91%

d. 5.46%

e. 4.55%%

B. What is the Effective Costof the Internal Common Stock?

a. 7.75%

b. 5.47%

c. 5.30%

d. 5.04%

e. 5.00%

greyalpaca203

Need Explanation andDetail in Excel Format:

1 The corporate treasurer of Ajax Company expects the company togrow at 4% in the future, and debt securities
at 6% interest (tax rate = 30%) to be a cheaper option to financethe growth. The current market price per share
of its common stock is $39, and the expected dividend in one yearis $1.50 per share. Calculate the cost of the company's
retained earnings and check if the treasurer's assumption iscorrect.

2 The risk-free rate on 10-year U.S. Treasury bills is 3% and theexpected rate of return on the overall stock market is 11%.
The company has a beta of 1.6. What is the cost of equity?

3 A company has a capital structure as follows:
Total Assets $600,000
Debt $300,000
Preferred Stock $100,000
Common Equity $200,000
What would be the minimum expected return from a new capitalinvestment project to satisfy the suppliers of the capital?
Assume the applicable tax rate is 40%, interest on debt is 11%,flotation cost per share of preferred stock is $0.75, and
flotation cost per share of common stock is $4. The preferred andcommon stocks are selling in the market for $26 and $143
a share respectively, and they are expected to pay a dividend of $2and $7, repectively, in one year. The company's dividends
are expected to grow at 13% per year. The firm would like tomaintain the existing capital structure to finance the new
project.

4 Required rate of return is 10%.
Net Cash Flow
Year Project A Project B
0 -$2,000 -$2,500
1 $900 $1,500
2 $1,100 $1,300
3 $1,300 $800
a) Calculate the payback period for each project.
b) Calculate the net present value for each project.

c) Which project do you think will be approved, if only one projectcan be approved? Why?
d) What if the required rate of return was 20%?

5 A corporate bond has a face value of $1,000 and an annual couponinterest rate of 7%. Interest is paid annually.
10 years of the life of the bond remain. The current market priceof the bond is $872. To the nearest whole percent,
what is the yield to maturity (YTM) of the bond today?

6 Ajax Manufacturing dividend is $8 per share of common stock inone year. The dividend growth rate is 3%.
Required rate of return is 14%.

a) What is the current market price per share?
b) What is the annual rate of return if you purchase the stock at$65?

7. A common stock sells for $82 per share, has a growth rate of 7%and a dividend that was just paid of $3.82. What is the
annual percent yield per share?

8 A corporate bond has a face value of $1,000 and an annual couponinterest rate of 6%. Interest is paid annually.
12 years of the life of the bond remain. The current market priceof the bond is $1,027, and it will mature at $1,100.
To the nearest whole percent, what is the yield to maturity (YTM)of the bond today?

fuchsiasquirrel354

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