1 Please calculate the Weighted Average Cost of Capital if the cost of debt is 10% with a 30% tax bracket. Also using the Gordon Growth Model, growth is 12%, the dividend next year is $1.25 and the price of the stock is $18.00 . The Capital Structure is 50% debt and 50% equity. Please propose a way to lessen the cost of debt.
2 Using the Capital Asset Pricing Model, assume the Risk Free Rate is 3%, the Market rate is 10% and the Beta is 1.7 Please explain how Beta measures risk for a firm.
3 Please explain the different capital budgeting techniques, please discuss the pros and cons.
4 Please calculate the value of a 30 year bond with a 10% coupon , that is due in 8 years, with current interest rates of 6%. Please explain why it would be a premium or discount bond.
5 Please explain the relationship between dividends and stock price growth as explained by the Gordon Growth Model
6 Please explain what is a callable bond . Why would a firm call a bond.
1 Please calculate the Weighted Average Cost of Capital if the cost of debt is 10% with a 30% tax bracket. Also using the Gordon Growth Model, growth is 12%, the dividend next year is $1.25 and the price of the stock is $18.00 . The Capital Structure is 50% debt and 50% equity. Please propose a way to lessen the cost of debt.
2 Using the Capital Asset Pricing Model, assume the Risk Free Rate is 3%, the Market rate is 10% and the Beta is 1.7 Please explain how Beta measures risk for a firm.
3 Please explain the different capital budgeting techniques, please discuss the pros and cons.
4 Please calculate the value of a 30 year bond with a 10% coupon , that is due in 8 years, with current interest rates of 6%. Please explain why it would be a premium or discount bond.
5 Please explain the relationship between dividends and stock price growth as explained by the Gordon Growth Model
6 Please explain what is a callable bond . Why would a firm call a bond.
Related questions
Please show formulas and calculations and not just results and numbers, and explain rationale for answers.
TRM has 2 operating divisions.TRM wants to estimate the cost of capital for each division and for the firm.Assume all debt is risk-free. Ignore taxes.The risk-free rate is 2.5% and the market risk premium is 10%.
| Firm | Equity Beta | Debt Ratio = Debt/Value | Divisionâs % of overall Firm Value |
| Atlas Foods | .80 | .40 | 40% |
| Lace Linen | 1.50 | .20 | 60% |
1. Estimate the asset beta for each division and for the firm.The asset beta is a weighted average of the debt beta (which is 0) and the equity beta.
2. TRMâs management uses the firmâs overall asset beta in evaluating both divisions.Is this a good idea? Explain.
